cdixon - Latest Comments in Dividing equity between founders

Re: Dividing equity between founders

payday loan — Sat, 04 Jun 2011 19:58:31 -0000

All too often we see founding teams decide to divide the pie up
evenly when they start. When we ask them why, they often admit they did
not want to create a conflict and decided it would be easier to share
equally. While there are certainly examples of successful companies ... Yes, every situation is unique in some ways, but usually not so unique that you can justify an equal equity split between the CEO and VP Marketing, even if they are both founders. ...

Re: Dividing equity between founders

Philip Baddeley — Tue, 25 Aug 2009 18:32:59 -0000

Great posts. We came up with the Equity Splitter, see Equity Fingerprint website, to provide a tool to help founders split the equity. It is simple and perhaps does not take into account enough of future scenarios. So important to have good leaver/bad leaver provisions as you say. Your stress on looking to the future says it all. Thanks for great posts

Re: Dividing equity between founders

Roger — Mon, 24 Aug 2009 12:35:50 -0000

Interesting article. I agree with most of the points mentioned in the article. The one point that seems unfair is to create a loan for the one founder that put in seed money. Loan's are usually secured by hard assets and putting money in at a start-up is a high-risk, high-reward game. For a seed money at a 5% interest loan, it's still very high risk but the reward is just not there. If I were the "no cash" co-founder, I would take that deal all day long.

Re: Dividing equity between founders

umairmufti — Sun, 23 Aug 2009 23:32:56 -0000

i think himanshu meant: http://www.andrew.cmu.edu/u...

Re: Dividing equity between founders

himanshu baweja — Sun, 23 Aug 2009 13:19:17 -0000

The approach we guys used is the founder's pie calculator by CMU prof.

http://www.andrew.cmu.edu/u...

Its a more a analytical approach and makes you think about all the different factors and their relative importance.

Re: Dividing equity between founders

chris dixon — Sun, 23 Aug 2009 13:17:12 -0000

Aditya - I don't see why location should be a determinant of the equity split. Perhaps it could be a determinant of cash salary, but that seems like all to me. If you create, say, 50% of the value in the company, you should get 50% of the equity.

Re having co-founders apart - If there is some strategic reason you need to (e.g. sales office in US, operations in India) it can make sense, but if that's not the case I'd say it's highly preferable to have everyone together in the same location.

Re: Dividing equity between founders

Aditya Kothadiya — Sun, 23 Aug 2009 12:04:06 -0000

Chris,

Thanks for another great article!

You touched following points -
1. Future contributions
2. Past contributions
3. Past success stories

I was wondering what are your thoughts on risk profiles of co-founders when they are not located at same place? Say one is located in Silicon Valley and other is located in low cost development country. Since the lifestyles are different, should we consider this location factor?As their might be difference of 5x cost at both places.

Or on the side note, is it not a good idea to have a co-founder a distant apart?

Your thoughts will be appreciated!

Thanks,
Aditya

Re: Dividing equity between founders

chris dixon — Sun, 23 Aug 2009 10:43:13 -0000

Well, to keep it super simple I just personally used a regular loan with the expectation everyone would be fine letting me convert it.

Re: Dividing equity between founders

Louis Marascio — Sun, 23 Aug 2009 10:41:02 -0000

Chris, these are good guidelines. In your seed capital description (3rd to last paragraph), don't you mean a convertible loan since that debt should convert to equity at a qualified financing? BTW, I've used this model and it works well.

Thanks,
Louis