Here founders of Zenlike are sharing their story of how they came to a decision to split unequally and why it felt as a right thing to do.
For a short resume: they agreed on a 55/45 split. Founder 1 got 55% for two reasons: first, he had been working already for 2 months on the project and secondly he had made a significant investment into the project. No premium was given for the idea. As for other factors, the two founders seemed to have a comparable level of experience, expertise and network value.
Recommended reading for those who are in the process of negotiating equity division with their co-founders. It clearly shows that in truly successful ventures even equity talks are more about fairness and cooperation than about “splitting” or getting into a more advantageous position in comparison to your co-founders.
We were also happy to see that the logic of Zenlike founders can be absolutely replicated in our FES model. While our model by default assigns some equity premium for an idea, this can be easily overridden by indicating that all founders are the “idea persons”. And FES helps founders consider even a wider range of their strengths and competencies which can be vital for the startup and which should therefore influence their equity splits.
This video is definitely worth watching. It’s a case study of two startups and their decisions about equity splits between founders. Two real-world stories with lots of wisdom to learn from them.
In short, the first story is about a 50/50 handshake (the equal split!) the Zipcar founder Robin made with her co-founder – and how much angst and regret it caused her shortly afterwards. “It was the stupidest handshake to make” recalls Robin.
The second story is about Ockam co-founders and their decision to split unequally. The decision was very logical because, for instance, one co-founder had worked for the other one for seven years as a junior before they decided to start a company. It was clear that their contributions to the startup wouldn’t be the same. And they did a great job of evaluating different scenarios of how much they would be involved with the startup (what if one of the founders wouldn’t quit his full-time job to work for the startup and so on) and identified different equity splits for every scenario.
Here are the key lessons to be learnt from this video:
- if you don’t want equity split issues to ruin your startup deal with them early
- when you deal with them, keep in mind that a 50/50 split is almost never a good solution
- it’s better to find out early whether you are compatible with your co-founder. Equity talks are the best time to do that.
- go through several scenarios of how your startup is likely to evolve. Decide how your equity split will be changing depending on the scenario.
Are you working on a new business idea with a small group of friends or colleagues? Is this the first time that you start a startup? Then you absolutely need to check out this entertaining infographics below from an infinitely creative FundersandFounders team.
Do any of these issues sound familiar to you? Beware of these founder conflicts, as they can easily sink any promising venture.
And yes, we would recommend any of those solutions – except just one. When answering the question “Who gets what” you should never jump to a 50/50 equity split. This is the only wrong answer, as Dan Shapiro put it in his widely cited and much discussed blog post.
Use Founder Solutions model instead and find out immediately what’s a fair equity share for each and every member of your startup team.