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What is a good equity split for the initial startup team?

I came up with the idea and validated it. Now I am building the inital team to develop and launch. It includes:

1) Me (non-technical founder – business development, marketing & finance)

2) Developer (technical co-founder – app development)

3) Designer (website, UI & marketing materials)

4) Product manager (testing, launching & QA)

5) Advisor #1 (startup experience as well as technical experience)

6) Advisor #2 (startup experience as well as industry experience)

None are currently leaving their job yet. None are investing any money. All sweat equity. All comp is 100% equity.

What is the appropritae equity split there? Figuring to leave enough for future investors and early stage employees.

  • I found Co-Founder Equity Calculator to be really good. http://foundrs.com/

    What I did was I sent this to my co-founders and told them to fill it out and send me the results. Good way to understand what expectations they have.

    Reply

  • If I was to be on your team with no compensation, I would expect a very big chunk of equity. As a technical co-founder, certainly somewhere between 20-40%, otherwise the deal makes no sense. And I’d have to believe very strongly in the potential of this project to work for free.

    As for leaving something for future investors, you don’t have to worry about it now. If you raise money in the future, you can always issue more stock.

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    • Stop tripping. You expect 20-40% as a technical co-founder? Then what would be left for the 1st founder (who says s/he’s already validated the idea BTW), designer and product guy? What, their contributions not equally valid? GTFOH. Your skills are only a *part* of building a product and ultimately a company. The product is probably tech-enabled, rather than tech-focused. In any case, the startup has not arrived until customers are buying its products and an increasing rate. And every member should work equally hard and be equally respected for their efforts towards reaching that point.

      Reply

  • A good equity split is you 100% and contract people to do work for hire – cash is king. DO NOT BE CASH POOR AND GIVE OUT EQUITY. The value of any of those things once they’re done is nothing once that person walks away with equity for hire work. If you’re seriously thinking giving equity for some of these tasks are, MAYBE, .25%-1%. I don’t encourage you to do that. Partly because you tell someone .25% and they think they’re getting hosed and think they’re worth more (which they’re not if they’re not sticking around). Just pay them. This is your dream, not there’s. Make sure to get contracts in place before you do any work. Make sure you own that IP.

    Maybe (and I don’t know a ton on this front) give them a stock option?!

    And with the Advisors , F-that! You’ll learn it and they generally turn out to be useless unless they’re really major players in the market and at that point you’re giving equity to use their name. It’s a total vanity play.

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  • In addition the the above points figure out if people are full time or part time. With the cofounder specify that in the operating agreement.

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  • I agree with the fact that it’s absurd to give equity to Advisors.
    However, a tech co-founder is necessary in a lot of project if you don’t have any cash and if you want a real investment just like you and take risks just like you => so equity just like you :
    – about 50% at the beginning of the project
    – less if the project has already started (company created, promise of contracts, business plan, a bit of attraction, etc.)

    Generally, you can find only one person which can have those three roles.
    2) Developer (technical co-founder – app development)
    3) Designer (website, UI & marketing materials)
    4) Product manager (testing, launching & QA)

    If not, I suggest you to give equity to the 2) but to find some money (not a lot) for the 3) and 4).

    Reply

    • 50% split with anyone is the worst thing you can do. No one can make a decision without a unanimous agreement. Plus depending if you’re going after $ you’re going to be so diluted you down won the company. Depending on the company and the roles I would actually say if you’re both full time and the CTO is actually doing the coding then MAYBE they get 30% and you 70% but I really think the CTO should get 10% maybe 2 year vesting 5% at a 3 month cliff and a stipend.

      For anything that is a one-off task pay them do not give equity.

      Reply

  • There is so much advice for free out there, online and in-person (via startup venues/events), and its mostly junk. So don’t assign equity to any advisors now, until after you’ve worked with (ie received advice) them for a while AND have found their input to be useful, produced tangible results, etc. Then you can decide to bring them on formally and assign 0.1-0.25% equity.

    Reply

  • Why is (2) given founder status? If this was pre-MVP market validation, idea only then I could see 30% (CTO) as fair compensation for your technical co-founder but as I asked earlier, why is he considered a co-founder and not just the CTO?

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