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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9 types of founder conflicts that can sink your startup

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.

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Five things you should know about founder equity (before you split it)

Founder equity (same as founder shares) is how much of the company (or soon-to-be company) belongs to its founders. We listed five most basic – and most useful – facts about founder equity to help you look at it in a new light before you split it with your co-founders.

1. It is an unlimited resource

Founder equity is not a limited resource. It’s an unlimited resource. It’s growing along with your company. Don’t be afraid to share equity with your co-founders, employees, advisers, investors. If you start working on an idea and own 100% of it – that’s 100% of nothing. It has no value yet. Value is created by people you’ll be able to attract and inspire by your idea. If at the end you have 10% of equity, that may be 10% of a billion dollar company. Isn’t it better than 100% of nothing?

2. Treat it as remuneration

At the very early stages of startup lifecycle founders are typically not paid salaries. Equity is then used as remuneration to the founders for the work they do. Similarly to remuneration, shares of equity should be aligned to founders’ performance, their contribution to the project, even the actual time spent working on the startup.

3. No payouts, at least in the short-term

In contrast to remuneration, however, equity is not “paid out”. It is a promise for founders that they will get the right on future company profits, if there are any. While the company is being built and has no real value, the founding team may want to regularly review their fair division of equity to make sure each founder gets a share corresponding to what he or she did relative to other startup co-founders.

4. Fix it when there is funding

The best time to get your division of founder equity fixed is when your startup is ready to raise funds or incorporate the company and use a real shareholder agreement. At that stage founders, if they take on executive roles in the company, usually start receiving salaries. From that moment on equity is a measure of how much control they have over the company and what is their share in the company profits.

5. Vesting is good for it

Founder equity may be subject to vesting. Vesting means that although founders already have certain shares of equity assigned to them, they still need to “earn” them by staying with the company long enough (standard vesting schedule spans over 3 to 4 years). Vesting prevents founders who lose interest in the project and leave from walking away with half of the company – which is good for those who stay and continue working hard to get things done!