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Slicing The Pie — How To Decide What Equity To Give To Co-Founders

· Startups

When I lived in London and tried to get my 1st startup going in 2010, I quickly shook hands with my co-Founder and agreed a 50/50 split of equity. Within weeks, egos collided and I realized that I had made one of the most common mistakes in business. In trying to find my ideal partner, I was looking for someone who was just like me. So guess what? I got another version of me. You cannot have two CEOs. We fell in love too quickly, hadn’t spent enough time with each other before formalizing things and didn’t do due diligence on each other.

The first startup I actually launched — Uberpong — was a simple affair. I was the sole Founder and incorporated the company as a Texas LLC. The application process didn’t take long and it took a few days for the company to be officially in business. Even when I added equity shareholders, it was a simple Operating Agreement that needed minimal legal assistance. I often refer to Uberpong as my MBA.

For my next startup business Qwerky, I have a vision that is much bigger and I realized early on that I would need at least one co-Founder, a team and capital to do what I had dreamed of doing. If you set out to truly change the world, you realize quickly that you cannot do it on your own.

One of the most awkward conversations you can have as the original Founder who has come up with the idea is how much equity you want to offer your co-Founder. When I first arrived in San Diego in 2016, I talked to a fellow Founder Kaison Tanabe about how he had done it with his Founders. He told me to take a look at a concept called “Slicing The Pie” which had been used by Founders and lawyers in Silicon Valley. This then led me to the Startup Equity Calculator. After spending time with my current co-Founder, the time had arrived that I was dreading: the time to discuss equity stakes. When I showed him the equity calculator and we went through each of the fifteen steps, it seemed to make complete sense. When the percentages were presented at the end, we both quickly agreed that they were fair. The calculator had effectively become our mediator and was a great tool to take away the awkwardness of the situation. We can now incorporate as a company, form an advisory board, apply to an incubator and then start pitching to investors. The entrepreneurial journey continues…

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