Equity Doesn't Mean Equal

There are other ways to split stock in a "fair manner" that isn't down the middle. The most common split amongst startup Founders is the ol' "fair split". Who can argue with a fair split? You'd have to be a real jerk, right?

June 12th, 2019   |    By: Wil Schroter

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What's more fair than a 50/50 equity split?

Well, chances are a 50/50 split is a bad deal for one person - the person who will contribute more value over the long haul. The problem comes when we make those determinations of future contribution based on the least we will ever know - where we stand before we start our startup.

Fortunately, there are a few ways to address the split differently, focusing on what our contributions may be over time.

Why should I be concerned about a 50/50 split?

Because the likelihood that both parties will contribute the exact same amount of value over the course of the startup’s life is incredibly low, especially in the formative years.

One person may be contributing a ton of value relative to the moment in time that a startup exists today (such as legal formation or initial branding work) that doesn't have the proportionate value over time.

Am I a jerk to suggest anything but an even split?

It depends on how we present it.

If we support our position with facts and numbers, such as the comparison of time, market value or capital invested, it becomes a more numeric conversation, and that's a good thing.

If we simply say "It was my idea so I should get 60%" that's just too amorphous of a reason. At that point, we're arguing about perspectives, not numbers.

Can we just change our mind later when we know more?

Definitely, but it can get tricky to adjust stock ownership later.

One method could be to just split the company 40/40 and leave the remaining 20% as a stock option pool that could be awarded based on milestones and contributions in the future. That requires some effort as well, but at least it allows for folks to "true up" the positions if contributions change.

I've already agreed to 50/50 — can I change it?

The best way to change a 50/50 split is to suggest additional stock awards based on contributions or milestones. If we both have 100 shares, and I'm awarded 20 more shares, that gives me 120 (55%) and you 100 (45%).

Adding more shares is easier for folks to accept than taking shares away.

About the Author

Wil Schroter

Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes BizplanClarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.

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