Hi all! So, I know this there isn’t a set rule for equity spilts and there are best practices such as YC suggesting equal split, but people I look up to (that have experience in this) that I’ve spoken to have strong opinions… especially the lawyers lol. What are your two cents for what the equity split should be for the following scenarios?
Side note before you answer- This is relevant to me at the moment since I’ve done numerous engineering interviews and so far most all except 1 (our personalities did not vibe) have offered to build the project and are actively pursuing me to be a part of the project.
And not to sound conceited, but I assume this startup only works if me or someone like me is involved since the industry I’m in is so closed off and hard to build trust in. But again I don’t want to straight up offend people with the equity splits I propose.
Another side note is I met all of these people via YC match. I reached out. And I do trust the lawyers but I guess I’m just making sure they aren’t being overly kind to me since I know them and work with them and make them money lol.
Ok here it goes:
Two founder team:
Founder 1 - ceo, person with the idea and the vision for the direction of the company. 15+ years domain experience in an almost impossible industry to break into. Has the right network with the top people in the industry & relationships with users. Deep knowledge of the issue. Also providing small seed funding (30k). Plus has a list of users ready to onboard once built, Figma with the design and user flow, all associated features listed and prioritized. Also has connections with funding for later raises.
Founder 2 - cto, creating the code and / or licensing parts of the build for efficiency, domain expertise in building app features at larger tech companies
Three founder team:
Founder 1 - CEO same as above
Founder 2 - co cto or founding engineer
Founder 3 - co cto or founding engineer, another engineer that fills in gaps of expertise for above engineer
What do the lawyers say lol
That the equity should be heavier in my favor since I have more leverage. Closer to 60/40 or 70/30. One is suggesting work for hire completely since I’m just getting to know the candidates.
If both cofounders bring in equal experience, money and their time, it should be equal.
However, in many cases, one founder (who started the idea and the vision) brings in money on the table. Hires a cofounder (say in tech) who demands some salary (perhaps with a cut).
In those cases if founder is funding the entire startup with his own money thus his share of funds should be treated and compensated with equity, just like an angel.
For Example. Assume your ideation company of value 100K and the founder brings in 10K but other cofounder doesn’t then the founder is entitled for 10% more equity, right?
Thus, in my opinion, Founders start with equal split but mutually decide for 60-40 or whatever depending upon the money/valuation.
Coming to founding team members. They usually get a salary and a single digit (or less) depending upon the experience they bring in.
This is purely based on my past experience, so kindly take it with a grain of salt.
Thank you for the advice!
I think it’s more likely that your lawyers are stupid than YC is wrong about anything related to startups. Ideas are worth nothing. The technical founder could talk to 30 people in your industry and come to the same if not better conclusion for how the problems should be solved. Majority of the work will be building product. Should be equal split always
They have startup experience. And I love YC but it’s not the end all be all for everything startups.
Appreciate the feedback!