Should Startup Founders Split Equity Equally?

July 26, 2016 - 2 minutes read

Equity feels imaginary for some early stage startups. Far from splitting up potential shares, the prospect of turning a profit is daunting enough. Many founders opt to avoid conflict and simply split equity evenly, allowing them to commit 100% of their talent to the project without feeling cheated or left out. The question for iPhone app developers is, should equity be split evenly? Is it a red flag for investors? If it’s not split evenly, how can teams decide who deserves what cut of the pie?

Even equity splits can be a red flag to investors for the same reason an even-figure funding goal smells suspicious — it says “I haven’t done my homework.” Deciding who gets what equity means asking tough questions: how members see their roles evolving over the long term, if and when the founder is willing to step aside for a seasoned CEO, if and when the engineering lead is willing to delegate their tasks to a new team, etc. More importantly, risk must be taken into consideration. Who has the most to lose, and who is giving up the most to chase the startup dream? It’s highly unlikely that the answers to these questions result in 50–50 answers, so a 50–50 equity split symbolizes little more than a compromise. To be fair, compromises can be effective for moral on small mobile app development teams. But investors hate compromise, and you risk scaring off funding.

Another problem early stage startups often fall into is defining shares too early. Sure, core founders should have control of equity as soon as possible — but the base team should have to prove their commitment before they’re rewarded with a percentage of shares in writing, equal or not. Many VCs recommend a one-year vesting cliff, awarding shares after a one-year period.

At the end of the day, the most important thing isn’t the share allocations so much as the conversation. Toronto mobile app developers who do their research and don’t rush to split will make a better impression on VCs and result in a happier team agreement.

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