I founded a company but have brought on an industrial designer and engineer on board as co-founders. They both bring unique skill sets and will put in the sweat equity, I am the CEO and will work in more the business intelligence side of things alongside PM duties. I have some hesitation giving them a large amount of ownership, as that would dilute my own. They deserve credit for their contribution, but to have my own shares dwindle into the 30-40's percentage of ownership gives me concern. Looking to vest month to month over a period of 2 or 3 years. Thoughts are welcome..

You asked this question a while ago, I just noticed it. I hope it's not too late to convince you that the best way to split equity for three founders is to use a dynamic equity split that will allocate equity based on the actual contributions of the three founders while allowing for the possibility that their individual contributions will be different and may vary over time and you might lose some and add others. If you do a fixed split (like the one you are contemplating) it will not be fair and every time something changes you will have to renegotiate and amend your shareholder agreement.

Your main concern shouldn't be your personal holdings. Your main concern should be to get what you deserve and to make sure that everyone else does too. Contrary to popular belief, there is a way to get this perfectly right.

Most companies make the mistake of doing fixed equity splits at the outset of the venture. This is because most founders and advisers are unfamiliar with the benefits of a dynamic equity program and the ease of implementation.

A dynamic program takes into account the actual contributions of the various participants and allocates equity on the relative risk each participant takes.

In my book on this topic, Slicing Pie, I convert all contributions of time, money, ideas, relationships, supplies, equipment and anything else into a fictional unit called "slices". Every contribution can be converted using a conversion calculation that uses fair market value and a risk factor.

Once converted, it is easy to use slices to determine shares. You simply divide the slices contributed by one person by all the slices and you have an exact %. It is perfectly fair. It changes over time to make sure that everyone gets what they deserve all the time.

There is a recovery framework too, which dictates how equity is recovered from individuals in the event of separation from the company. In some cases they lose equity, in some cases there is a buyout. The model will tell you exactly what the buyout should be too.

Every other model is less fair. However, people at startups are taken advantage of so often they might not even notice (at first). When they do notice, relationships begin to deteriorate fast.

Like I mentioned earlier, I wrote a book on this topic and you can have a copy if you contact me through

Answered 7 years ago

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