The Startup Playbook, 2nd Edition

Chapter 13Equity Splits

As I (Rajat) mentioned in the last chapter, at NetGenesis we split ownership in the company equally. As you can imagine, this led to some people feeling that they were underappreciated relative to their contributions and then when two of the founders left, that their ownership was too much even with their shares being vested. Lesson learned: don't split it equally.

Of course, with my next companies we didn't split it equally, but the up-front conversations were a lot harder. It took much more time, tense discussions, and vulnerable moments to get to the other side where we had agreement and alignment on the equity splits. More than once, we've had a founder withdraw because they didn't believe that the ownership allocations were fair. Even I have walked away from projects where I didn't feel that my contributions were being valued fairly.

All in all, though, having that difficult conversation out in the open at an early stage in the company's life cycle is critical. A lingering feeling of unfairness in a founder's ownership is a recipe for disaster. Inevitably, it will lead to significant problems, and even the destruction of the company. My advice: have the conversation directly and continue it until everybody is on the same page.

Splitting the Pie

Once you've assembled your founding team, determining how to share ownership of a company is one of the most difficult conversations you'll have with your fellow founders. It's also a discussion that may ...