How Much Equity to Give Your Cofounder - Michael Seibel

Summary

Equity splits for cofounders should prioritize maximizing motivation among team members. Factors to consider include understanding the time commitment required, long-term interests, and creating a split that maximizes motivation. Vesting and a cliff are safety mechanisms for equity distribution that ensure a motivated team and allow for corrections in cofounder choices. Being more generous with equity creates long-term motivation and commitment. Relying on equity stake drives dedication and reduces the need for constant motivation. Equal equity splits are generally recommended, but the CEO should evaluate the future and motivation of cofounders and reconsider team composition if necessary. The concept of "the end" signifies conclusion or finality, often associated with sadness, loss, closure, but also new beginnings and growth.

How much equity to give your cofounders

Common problem of how much equity to give cofounders
Varied advice online
Founders missing key points when dividing up equity

Equity splits should maximize motivation

Equity splits should prioritize maximizing motivation among co-founders.

Key points:

Co-founders may not fully understand the time commitment required for a successful startup.
Long-term interests of co-founders should be considered, even if they are not currently focused on it.
Negotiation should not be the primary factor in determining equity splits.
The goal should be to create a split that maximizes motivation among team members.
Concerns about giving equity to teammates are valid, as startup teams often break up and founders leave.

Safety mechanism for equity - Vesting and Cliff

Vesting and a cliff are safety mechanisms for equity distribution. They ensure a motivated team and allow CEOs to correct any mistakes in choosing co-founders within the first year without long-term harm to the company. Key points include:

Vesting means equity is earned over a period of time, usually four years.
A one-year cliff means no equity is received if someone leaves or is fired within the first year.
These mechanisms provide a safety net for companies and help maintain team motivation.

More generous with equity not less

Being more generous with equity for co-founders is beneficial as it creates long-term motivation and commitment to the startup. This motivation is crucial during challenging times when things are not going well. As a CEO, it is important to avoid constantly having to motivate co-founders and instead rely on their equity stake to drive their dedication. When co-founders feel like true owners of the company, they are more likely to go above and beyond, working late, recruiting friends, and taking ownership. While there is no specific equity split that guarantees this level of motivation, achieving it greatly enhances the value and viability of the company.

Being generous with equity for co-founders creates long-term motivation and commitment.
Co-founders who feel like true owners are more likely to go above and beyond.
Relying on equity stake drives dedication and reduces the need for constant motivation.
No specific equity split guarantees motivation, but achieving it enhances company value and viability.

Equal equity splits

Equal equity splits are generally recommended for companies, but there are exceptions. The CEO should consider the future and motivation of their co-founders. If they don't see a long-term need for them, they should reconsider their team composition.

Equal equity splits are commonly advised for companies
CEO should evaluate the future and motivation of co-founders
Reconsider team composition if long-term need is not seen

End

The end is a concept that signifies the conclusion or finality of something.

Key points:

The end can refer to the end of a life, a relationship, a project, or any other entity or process.
It is often associated with feelings of sadness, loss, and closure.
The end can also be seen as a new beginning or a chance for growth and transformation.
It is a universal experience that everyone will face at some point in their lives.

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