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.
The FounderSolutions got into its first ever pitch competition – and WON it!
Thanks go to Pankaj Saharan, our co-founder, who outcompeted around 10 other excellent pitch makers in a contest “Pitch and Beer” held in Helsinki.
Pankaj’s presentation of the idea and vision behind FounderSolutions won appreciation of a panel of strict judges, including a serial entrepreneur Ilkka Lavas (w3.fi, ilmainensanakirja.fi, http://deitti.net).
Do you know how Mark Zuckerberg split equity with his co-founders in the early days of Facebook? Bear with me and read this post to the end, as this story teaches the importance of dividing equity fairly – which almost never means equally.
Zuckerberg was from the very beginning a true leader of the project destined to become Facebook. He was the “idea guy”. He gathered the team around himself and inspired them. He wasn’t focused on money, but “content to make something cool”. His idea and execution attracted great mentors and investors.
Zuckerberg’s early team included Eduardo Severin, who knew business stuff and who gave Mark Zuckerberg $15,000 to pay for the servers needed to run Facebook site, and Dustin Moskovitz, Facebook’s first CTO.
At the beginning Facebook shares were split between them, with Zuckerberg owning 65%, Severin owning 30% and Moskovitz owning 5%.
If you watched the “The Social Network” movie, you should be familiar with the rest of the story. Severin made some false steps failing to perform his duties at the company and even trying to promote his side-startup at the expense of Facebook. Luckily, his share was smaller and Mark Zuckerberg had enough control to do things his way and fix the problem.
What would happen if their team had divided shares equally at the start, with each of them owning 33,3%? Zuckerberg then wouldn’t own the majority of shares and wouldn’t be able to force Severin out of the company. And Facebook would probably never become the successful giant we know today.
Now, think again in the light of this story – will equal split be good for your startup?
This story is based on a much longer, but insightful article from BusinessInsider.com
Today we’ve come live! Come celebrate with us!
If you are a team of founders ready to divide equity for the first time, or you want to check how fair is your current agreement on equity split, or you are just interested in founder equity issues, you are welcome to visit us at foundersolutions.com and try Founder Equity Solution (FES) model. It’s free and easy to use!
We get many questions from founders why they should use the model if they can always split equally. Well, equal split doesn’t always mean fair. And it actually can harm the startup. If founders split equally and then one of the founders feels that she contributes more to the project, that may cause tension between founders and result in a less stable startup performance. Investors, so the research says, tend to give lower valuations to teams splitting equally, because they suspect that such teams lack entrepreneurial negotiation skills.
FES has everything to help you decide on a fair equity split for your team. Go to the website, open the model, answer the questions and get the recommendation on how to divide equity within several minutes! You may agree with it or not – that’s fine. You may adjust it further with your team. Important is that you can use this recommendation as a starting point in equity negotiations with your co-founders and turn uncomfortable conversations into a fun teamwork!
We hope you’ll enjoy using FES! We’d love to hear your feedback here or at http://foundersolutions.com
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We are excited to announce that Founder Equity Solution aka FES, our tool for modeling equity division between startup co-founders, is about to launch in a matter of days!
The countdown has begun. While we are writing this, it’s 3 days and 16 hours left till the official launch of our webpage http://www.foundersolutions.com/ Don’t miss this opportunity to visit it and register with us, if you haven’t done so yet, to be the first to know that FES is live!