Co-founder Equity Split: A New Framework to Objectively Divide Startup Ownership and Get Back to Building a Business

Nov 13, 2016 · gust.com

Screen shot 2016 11 13 at 11.19.30

Gust has just released their free Co-founder Equity Split tool. It’ll give you a fair and objective recommendation about how to divide your startup’s ownership, so you and your co-founders will have a sensible, real starting point for this notoriously hard, crucially important conversation.

Many startup founders find themselves lacking clarity and direction when it comes time to divide their new company’s ownership among co-founders. It’s a crucial step, and one that is very important to take seriously: in addition to having potentially massive effects on each person’s earning potential if the startup takes off, showing that your team (and CEO) can handle hard discussions is an important signal to potential investors. But finding and asking the right questions to split equity is difficult, and because your team is excited, new, and probably close, it’s tempting to avoid the issue, sidestep it, and take shortcuts.

For founders who do take on the responsibility head-on, there are many existing guides, blog posts, books, Quora answers, and rules of thumb recommending processes to split equity, but many founders run into difficulties actually applying these guidelines and frameworks. They usually require estimating obscure values and seemingly arbitrary percentages: "Founder B increases our value by 25% sometime in the future, so I should be willing to give them 1/(1-0.25) of the company." To arrive at that answer, you’d have to be able to guess your venture’s current value, future value, and if the value would increase by a certain percentage from a certain person’s actions, without any context at all.

Our goal in building this Co-founder Equity Split tool was to consume all the different methods out there and build a framework that avoided their shortcomings but still appreciated the complexity of the question at hand. We found that, across all of these frameworks (and in our own experience), the most basic question co-founders need to answer is: "What are the venture’s needs, who is bringing value to the table, how much and what kind of value is each person bringing, and how can we make all these different kinds of contributions comparable?"

By value, we mean any attributes or effects that will be integral to building, growing, and managing the venture. While there are many kinds of value each co-founder can bring to the table, there are basically just two ways to assess value...

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