The penny gap between founders

For a founder, it's common to start by splitting things 50/50 (or 33/33/33, depending on the number of founders). This makes sense if two people think up an idea together, are both committing to it full time, neither one is taking a salary, and they both can contribute in a significant way to the business.

There are a lot of reasons why you might not split it 50/50. 

• If one founder is much more seasoned than the other founder. ie. If I've sold 5 companies and you're right out of college, you should expect less than 5% of the company even if we're both founders.
• If one person is taking a small salary and the other isn't
• If one person is putting in cash and the other isn't (it's usually better to handle that separately as an investment or convertible note)
• If one person has been working on the company for a year or two already and the other is just starting
• Many more - every situation is different

In the end, the actual number you come up with is fairly arbitrary. It's whatever you can agree to. Some people just go 50/50 and others come up with a justification for some other number. 

Kind of like Josh Kopelman's "penny gap", there is a huge difference between 50/50 and one partner with 50.1% and the other with 49.9%. One clearly says, "We're partners" and the other clearly says "I'm in charge." Actual control is probably not directly tied to the way the founders split the stock, so its more emotional than practical. But that doesn't make it any less significant. The decision you make here will set the tone for your entire relationship.

Comments

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[WeaverRhonda]

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[Tom Leys]

When my Father and I went into business together to found Gridspy, we had a long history of working together under a standard employer, employee relationship.

However, we decided to go 50-50 despite his connections and experience because it gives us permission to go at it full tilt without any concern about the 'fairness' of it. We are both highly committed, loyal and ethical individuals (at least by my opinion) and we have a long working relationship so in this case it works.

While he brings experience to the table, as a member of the younger generation I intimately know a lot more about the web and have been up-skilling about start-ups for many years. I think we made the right decision.

To put it another way, I think we both got a killer deal.

[Joshua Baer]

Vesting is an entirely separate issue. All founders equity should vest. If the founders put in money, that should be handled separately as an investment. This is the subject of another separate blog post that's coming...

[Sergey S.]

50/50 is a terrible idea and a common mistake some start-up founders make when base their assumptions on idealistic ideas and not practical possibilities. Personal circumstances of the partners can change at any moment and that can jeopardize the entire venture. Spend time negotiating, don't jump in. There shouldn't be "love at first sight" in business.

[Frank Peters]

My story: in 1983 I started a software company by myself. Within a year my brother left the Marine Corp and joined me. I offered him 5% equity per year for 5 years then a bonus %10 for a total of 35% as my partner. The vesting brought some logic to the plan, he accepted. He probably never imagined staying that long, but he did; we exited the company 15 years later in a nice acquisition and I maintained significant equity as founder.

[Jason Stoddard]

I wish I would have read this 5 years ago. Good, to the point, info.