Feeling right about an unequal split

FounderSolutions 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.

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Two real-world stories: a good and a bad decision on equity split

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.

The First Win

pitch

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.fiilmainensanakirja.fihttp://deitti.net).

Congrats, Pankaj!

An exciting day!

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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FounderSolutions team