How to Split Equity Among Co-Founders: Co-Founders, Stock Equity, Management

How to Split Equity Among Co-Founders: Co-Founders, Stock Equity, Management

Startups are about execution, not about ideas. This is a well-known fact in the entrepreneurial world. While having a great idea is important, it is the ability to execute that idea that truly determines the success of a startup. However, one aspect that often gets overlooked in the early stages of a startup is how to split equity among co-founders.

Many founders tend to make the mistake of splitting equity based on early work. They believe that the person who came up with the idea or put in the most effort in the beginning should receive a larger share of the equity. However, this approach can lead to some serious problems down the line.

It takes 7 to 10 years to build a company of great value. Small variations in year one do not justify massively different founder equity splits in year 2-10. The work done in the early stages of a startup is just the foundation. It is the subsequent years of hard work, dedication, and perseverance that truly determine the success of a company. Therefore, it is not fair to base equity splits solely on early work.

Another important factor to consider when splitting equity is how it reflects on the CEO's perception of their co-founders. Investors often look at the founder equity split as a cue on how the CEO values their co-founders. If a co-founder is only given a small percentage of the equity, it may give the impression that they are not very good or not going to be impactful in the business. This can have a negative impact on the startup's ability to raise funding and attract top talent.

Based on these considerations, my advice for splitting equity is probably controversial, but it's what we have done for all of my startups, and what we almost always recommend at YC: equal equity splits among co-founders. I believe equal or close to equal equity splits among founding teams should become standard. If you aren't willing to give your partner an equal share, then perhaps you are choosing the wrong partner.

Now, let's switch gears and talk about a different topic - the Zettelkasten method. This method, which was pioneered by Conrad Gessner and described in detail by Johann Jacob Moser, is a note-taking system that not only allows researchers to store and retrieve information related to their research but also intends to enhance creativity.

The Zettelkasten method involves numbering notes hierarchically, allowing new notes to be inserted at the appropriate place. These notes also contain metadata that allows the note-taker to associate notes with each other. This cross-referencing of notes through tags helps researchers perceive connections and relationships between individual pieces of information that may not be apparent in isolation.

This method can be incredibly valuable for startups as well. Startups are often faced with complex problems that require innovative solutions. By implementing the Zettelkasten method, founders can store and retrieve information that is relevant to their business, and also make connections between different ideas and concepts. This can spark creativity and lead to new and innovative solutions to the challenges they face.

In conclusion, when it comes to splitting equity among co-founders, it is important to consider the long-term value that each co-founder brings to the table, rather than focusing solely on early work. Equal or close to equal equity splits among founding teams should become the standard, as it reflects the value that each co-founder brings and helps attract investors and top talent.

Additionally, implementing the Zettelkasten method can enhance creativity and problem-solving abilities within a startup. By cross-referencing notes and making connections between different ideas, founders can find innovative solutions to the challenges they face.

Here are three actionable pieces of advice to keep in mind:

1. Value your co-founders: When splitting equity, consider the long-term value that each co-founder brings to the table. Equal or close to equal equity splits reflect the value each co-founder brings and can positively impact the perception of investors and potential hires.

2. Implement the Zettelkasten method: Adopt a note-taking system that allows you to store and retrieve information related to your business. Cross-reference notes and make connections between different ideas to enhance creativity and problem-solving abilities.

3. Choose the right partner: Before entering into a partnership, carefully consider the person you choose as your co-founder. If you are not willing to give them an equal share of the equity, it may be a sign that you have chosen the wrong partner.

By following these pieces of advice, you can set your startup up for success and create a strong foundation for growth and innovation.