This is an anonymous post from an Elpha member.

How do you feel when it’s not 50/50 equity split?

Lorraine26·Apr 02, 2021

Hi I’ve been working on an idea for the last couple of months with someone I met recently. It was my idea as it came from a previous business I had but decided to carve it out on its own. I had formed the idea and documented it but since then we have made a few tweaks. I recently brought up the conversation of equity split after about 5 months.. Due to several reasons I don’t think it should be a 50/50 split, I’ll be taking on the Ceo role responsible for raising funds, using my network, leveraging my profile and so many other things. If you are a co-founder who doesn’t have a 50/50 split, how do you feel about this? Are there other ways you can make someone feel important and appreciated without giving them more equity? Throughout the time working together I have valued her opinions and respected them but now it seems she’s forgotten that because of the equity numbers. We will also eventually need a technical person so we may need another co-founder if we are not planning to pay them.I don’t want to work with someone that will be bitter and resentful. Also when it comes to voting rights, being a director, sitting on the board - how is this decided? Would particular like to hear from founder of Elpha as I know she has co-founders. Thank you, Elphas!

Monisha·Apr 02, 2021

Hey,It depends on various factors.1. Idea: Whose idea was the enterprise? Often, even the idea of a business is a collaborative effort, but if one or two partners started the whole project moving with the kernel of an idea, this could weigh in favor of greater equity percentages.2. Experience/Seniority/Role: Founding splits typically acknowledge that more senior founders or teammates in C-level positions will have a larger founders’ equity percentage than more junior or staff-level co-founders.3. Capital Investment & Sweat Equity: sometimes some of the co-founders provide personal startup capital (hard cash) at a company’s inception. Often they will receive a larger portion of founders’ common equity as a result, rather than structuring their capital as a separate investment via preferred equity or convertible note. In other cases, some co-founders might forgo salary early on (if their personal circumstances permit) to earn an additional share of “sweat” equity. Both of these are typically reflected in the founder equity split.4. Prior & Ongoing Involvement. A co-founder’s equity should also be reflective of their ongoing involvement in the company. In my experience, too often the bulk of the attention is paid to what’s been contributed to the company to date, rather than the more important issue of what is going to be contributed in the future. 5. Ideation/IP. Sometimes a portion of founders’ equity splits is attributed to “who came up with the idea” or to actual IP that’s brought into the business at inception. If a tech person also comes in at that time also the company has to decide on the payment because tech work actually involves so many things.Hope this helps. Do drop me an email at [email protected] for any technical help :)

DianePrince·Apr 03, 2021

Hi Lorraine, I couldn't tell from your post -- is she expecting or asking for 50%? I have started up, scaled and sold several businesses. The only 50/50 split I've done was with a spouse and I don't know if I'd even do that again! If you'd like to talk this through, feel free to schedule a call with me. I coach founders through things like this (I work with several Elphas) https://calendly.com/dianeprincemalibu/30-minute-free-consultation

Lorraine26·Apr 04, 2021

Thanks! Booked in and left a note.

DianePrince·Apr 04, 2021

Lorraine, I replied to your email last night. I look forward to talking!

TLC·Apr 16, 2021

Thanks @DianePrince will also book time w you.

JenYi·Apr 04, 2021

Adding this article:https://www.startuphacks.vc/blog/the-myth-of-equal-startup-co-foundersI paid consultants for advice on equity splits and both strongly stated 50/50 is a good way to find yourself struggling in the future. In practice, I found this to be true. Three key reasons:1) Someone need to own the decisions. In the case of a tie, who breaks it? 2) Dilution...if you only start with 50% dilution it’s likely to get you to 40% or less if you are taking investment, creating employee pools, etc. 3) Value: I have a founder friend who put it this way - the CEO role is the toughest role to own. It’s the CEO, not CTO that will be accountable to investors for EVERYTHING. You need to make sure when times get really dark, you feel the equity value is part of your motivation. Finally, make absolutely sure you build in an exit clause. I didn’t and that’s what sunk my first start-up.

Lorraine26·Apr 06, 2021

Thank you so much for the advice especially around the exit clause! Well noted.

LVLUPLegal·Apr 05, 2021

Hi @lorraine26 - I am the Managing Attorney of LVLUP Legal (www.lvluplegal.com), and I often advise clients on equity split. I agree with @MonishaSurana that it is important to evaluate the circumstances and what each party is bringing to the table. The one piece of advice I would recommend is to make sure that there is a vesting schedule and potentially a 1-year cliff so that your co-founder doesn't get the 50% of equity right away. Many times I have seen founders enter into a business relationship with the best intentions, but then one partner walks away from the business with half the equity, and the other founder can't buy it or transfer it back. I would be happy to set up a free consultation with you to discuss this matter further. Feel free to send me an email at [email protected].

Lorraine26·Apr 06, 2021

Thank you so much and will be reaching out to you!

JenYi·Apr 06, 2021

I did a consult with Shermim and it was valuable. She’s terrific and I plan to do biz with LVLUP. FYI

LVLUPLegal·Apr 07, 2021

Thanks @jenyi I appreciate the kind words!

Amy134·Apr 05, 2021

Hi Lorraine26,Coming from a setup that was exactly the same as what you are facing now, I would strongly recommend you take at least 1 if not at least 10% more percentage holding. However this is not without grief if your partner is already as it seems, thinking it should be a 50-50.One thing that I can constantly fall back on is that our split was according to the investment amount. Hence not only do you take more because you are the original founder, but you can justify it with the amount of capital you are putting in. The remaining shares can be vested at an equal rate depending on the input of work in the next few years.Nonetheless this said partner of mine gave me a lot of grief through the time we worked together about my "majority shareholding", despite us both working at the same pace i.e. full time. And she has now "left" the business to me to run after throwing a hissy fit (one of many). So at the end of the day, if it is your vision, you will be the last woman standing. Don't give up your rights to a majority share.All the best.

Lorraine26·Apr 06, 2021

Thanks so much and so sorry (or not sorry?!) to hear your co-founder left you. I have been in a situation where I have had to leave also but that was also my idea...I hopefully do not want to repeat the same mistake.

Amy134·Apr 07, 2021

Thanks Lorraine things have been a lot clearer since her departure. While it isn’t easy I am glad she made the move! Sorry to hear about your previous situation though and definitely do look at drawing this out clearly before proceeding. One thing I’ve learnt is to be less hasty about such decisions.

Amritha·Apr 08, 2021

Hi Lorraine,Looks like you may have found a solution. Nonetheless, sharing a 'CoFounder Equity Calculator' that I found useful in setting expectations:http://foundrs.comSharing my perspective from the other side, where I was a <50% shareholder in a startup co-founded with a b-school peer. My major concern was around being replaced before the reverse vesting had fully run through. A solution we came up with was to put me as a Director on the BOD with voting rights, thus providing full visibility. However, things did not work out in the end but for different reasons.Often, both parties end up putting in the same hours during the first year and this can lead to discontent. Perhaps, a higher salary assuming you have raised funding could offset.Once a person feels short-changed, whether true or not, it is difficult to overcome the trust deficit. It can be an ongoing challenge that can re-trigger, say with term sheet clauses that place restrictions on 'founders' as a group.Wish you lots of luck and hope things work out well.