Co-Founders Equity

Running a startup requires a complete team.

Someone is building it and someone is selling it. 

In the early stages of a startup, the founder is doing one of these and the cofounder is doing the other.

Founders should look for cofounders whose skill complements their own.

Since there’s no revenue, equity is used to compensate the founder and cofounder for their early work.

Founders must split the equity with the cofounder. 

Here are some key points to consider in determining the equity split:

Keep the big picture in mind when determining the cofounder’s value.

Startups take many years to build and then sell so decisions should be made on long-term value and not just short-term job duties.

The equity split must be compelling enough for both founder and co-founder to motivate a strong contribution. 

Investors will look at the equity split to see if the key players are adequately motivated.

Focus on skills and execution rather than ideas and hours worked.

Make sure you vest the cofounder’s shares over four years.

I see many startups with only half the equity still engaged with the company as a cofounder left early and took their entire equity allocation with them.

Plan for the long term and split equity so everyone is motivated to see it through.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.