How should equity be split between founders?

How much equity each founder gets in a startups has to be decided after serious deliberations on a number of factors. This is especially true when two or more friends (and worse, relatives) are coming together to start a venture.

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Whatever the split, assuming that equity should be split equally between all founders is an incorrect starting point. 

Each team will have their own dynamics, and emotional as well as rational reasons to decide the split of equity between them. I would urge them to consider the following factors:

  • Importance of the person’s function to the team (e.g. technology, marketing, etc.)
  • Criticality of that person being in the team
  • Is he/she the only person with that skill set in the team
  • The seniority of that person in professional life
  • What is the person giving up to come to this venture (opportunity cost)

Here’s a link to a neat tool to help you decide on the equity split Co-Founder Equity Calculator

Author: Prajakt Raut

Prajakt has over 25 years of experience as an entrepreneur, marketing professional and entrepreneurship evangelist. Prajakt helps startups understand the dynamics of business, and assists them in developing meaningful business plans. He mentors startups on strategy, business model & monetization, fundraising and on preparing the company for growth. Prajakt was previously a part of the founding team of The Hatch for Startups, where he established the brand as a leading player in the early-stage entrepreneurial eco-system in India. Prajakt was the face of The Hatch, and as its executive director, created the out reach programs, deal flow management processes, productized the offering for portfolio companies and built meaningful partnerships with relevant stakeholders. Prajakt is well connected, and respected in the entrepreneurial eco-system in India. He writes extensively on his blog The Hub for Startups (https://thehubforstartups.wordpress.com/) and Quora (http://www.quora.com/Prajakt-Raut). Prior to The Hatch, Prajakt had co-founded Orange Cross, a healthcare services management company. Between 2004 – 2007, Prajakt had taken a 3-year sabbatical to be the Asia Director for TiE (The Indus Entrepreneurs), a global non-profit organization focused on promoting entrepreneurship. At TiE, he was primarily focused on helping entrepreneurs in India connect with the emerging early-stage investor community. In that role, Prajakt helped create interconnectivity between overseas investors and Indian entrepreneurs, and also interconnect the TiE chapters across India. Prajakt has spent over a decade in advertising and marketing companies including Grey, Madison DMB&B and Capital. He was also part of the founding team of a printing business and a CRM solutions company. Prajakt's personal goal in life is to encourage and assist a 100,000 people to become entrepreneurs and for this he also volunteers time with organizations like the National Entrepreneurship Network [NEN] and TiE.

2 thoughts on “How should equity be split between founders?”

  1. I’m having the same problem with my team, the founders equity.
    I’m the idea owner and also the marketing one, I’ve a junior IT developer, business developer and PR specialist, what is the best percentage for all?

  2. “Instincts” come to the rescue beyond any and all tools! How much to keep and how much to give away surely depends on the stage the enterprise is in, the contributions of the founder(s), the progress or hindrance that the venture will face due to this decision and finally the other factors in the table!

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