How to split equity between co-founders

Equal co-founder splits are a common and uncontroversial way to divide equity when you’re starting a company. However, it turns out that only ~1/3 of cofounders split equity equally.

So what should you do? Here are a number of questions that might help resolve how you decide co-founder equity grants when you’re starting out.

Prior or relative involvement (0-3 points)

• Has one person raised capital, acquired a number of customers, validated the hypotheses, or otherwise de-risked the company meaningfully?

• Has one cofounder been working on this for (much) longer than another? Have they put (significant) personal capital at risk already?

• Is any teammate full-time while others one person going to be less-than fully involved on a go-forward, foreseeable basis?

For example – someone who’s been working on an idea for 6 months full time, or someone who’s invested $50K in working on the problem has probably earned a greater share of the equity compared to another.

Singular skills (1-2 points)

• Are they the first person to bring specific skills (e.g., engineering, GTM experience, design experience, etc.) to the team?

A second engineering cofounder or a second person focused on GTM might not be as valuable as the first addition to a critical function. Engineering and sales are considered to be the two most critical ones at the early stage, and would probably call for 2 points each; while other functions might call for 1 point each.

Salary differences (0-3 points)

• Did one of the founders have to wait until fundraising to join the company full-time?

• Is one person drawing taking a significantly lower salary than the others until subsequent rounds of funding?

Assign 1 point for each material unit of discrepancy e.g., $50K.

Experience / Other (0-3 points)

• Is one person a topic matter expert on the company’s subject matter?

• Is one person significantly more senior than the other (e.g., by several levels, in a way that matters)?

• Does someone bring networks, relationships, or something else to the table that needs to be accounted for?

Key Roles (1-3 points)

• Who is going to be CEO? (2 points)

• Who is going to be CTO / COO? (1 point)

• Is anyone taking on a unique role that is necessary for the company to operate (e.g., a licensing in insurance, finance, etc.)? (1 point)

• Who is going to be a board member? (1 point)

Closing thoughts

At the end of the day, there’s no right answer, but there are definitely more right or more wrong answers. It’s best to set the ranges on what feels right, and work backwards from there.

If you really want a mathematical approach (though I really don’t recommend it), add up the points above, and use that percent to dictate what delta in equity is appropriate.

I also like the calculator hosted at Foundrs.com (I think it leaves out a couple of important things like the ongoing salary differences, but it’s a solid point of reference).

If it turns out that these points are more or less equal (e.g., 7 vs. 6) you might just want to do an equal split — that’s just splitting hairs. But if it’s wider (e.g., 8 vs. 3) then an unequal split might be the fairer approach.

This is ultimately a human question. It doesn’t matter if a formula spits out a number if it feels unfair or wrong to any founder. Anything that doesn’t feel right all around will just end in tears. At best, this is a list of questions and directional weightings to inform the discussion and talk through what feels fair and right to everyone.