I was chatting with an early startup team yesterday and they had a reasonably common question, which I will answer here for benefit of others in similar situation:
What should one do about equity split in a team of X where one is clearly the junior partner?
What should one do about equity split in a team of X where one is clearly the junior partner?
I have one question here: is the junior partner a cofounder who is irreplaceable for this enterprise? Then you should split it evenly; thirds if X is 3.
8 years from now in success case you’ll be known ONLY for current adventure, and the supermajority of value created is future.
8 years from now in success case you’ll be known ONLY for current adventure, and the supermajority of value created is future.
Separately from questions of fairness, perceptions of fairness also matter. You do not want, 18 months from now when going through a periodic tough time, for one founder to constantly feel like their efforts are “worth less” and wonder if they should just push reset button.
“What if they’re not critical to the enterprise?”
In most cases I will disagree with this, but I can imagine circumstances where e.g. they get a market salary from day one sourced out of revenue from an existing business or savings or money raised on a handshake previously.
In most cases I will disagree with this, but I can imagine circumstances where e.g. they get a market salary from day one sourced out of revenue from an existing business or savings or money raised on a handshake previously.
In one of those circumstances, you might have a “generous for an early employee” grant, but you have to be really, really clear between the N of you about the cofounder/employee distinction because people are going to ask and it really matters in some social situations.
I am not thrilled about this, but in consensus SFBA culture, there is a pretty titanic gulf between last co-founder and first employee regarding questions like “Should an investor or prospective investor ever desire to talk to you 1:1?”
(There is also a gap on that particular question of “CEO vs. any other cofounder” but if an investor talks to co-founding CTO w/o telling CEO that is cool but if they talk to employee CTO they *have transgressed.*)
A thing about generous employee grants: professional money had definite views regarding the total employee allocation (options pool) and overspending on employee #1 will often result in them advocating for revisiting that decision later.
