Co-Founder Equity Splits: Strategies for Startup Success

Founders should prioritize generous equity splits to motivate their teams and ensure long-term commitment.

### Co-Founder Equity Splits and Breakups in Tech Startups
* 💼  Founders of tech software startups should be **generous with co-founder equity** to motivate the team through the **difficult early years**.
* ⏳  The CEO's job is to not just think about today, but to keep co-founders motivated over the course of the **four-year vesting period and beyond**.
* 📊  Equity splits should be **close to equal** to prevent resentment and maintain motivation over the long term.
* 🔒  Vesting and cliffs are essential for all founders to **protect the company in case of early departures**.
* 🧑‍💼  Only **essential team members** should be considered co-founders, and the CEO should have the ability to **remove underperforming founders**.
* 🤝  Guidelines for co-founder breakups include **small equity stakes for those leaving before the one-year cliff**, and **relinquishing board and voting rights**.
* ❌  Bad reasons for unequal equity splits include **idea ownership**, **experience level**, and **starting date**.
* 🚀 " The best founders are **long-term thinkers**. The best founders are not only thinking about today, but they're **thinking about tomorrow**.

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Generosity with co-founder equity is crucial for motivating the founding team during the challenging early years of a startup.

Close to equal equity splits are recommended to prevent resentment and keep founders motivated over time.

Vesting and cliffs are essential tools for distributing equity, providing a safety net in case of unexpected departures or changes in circumstances.

Guidelines for Co-Founder Equity and Vesting

Four-year vesting with a one-year cliff is common for co-founders, ensuring they earn stock only after a year of working together.

It's important to have a small, essential founding team to build the MVP and drive customer engagement.

The CEO should have the authority to fire underperforming founders, and co-founders should discuss potential outcomes in case of a breakup, with token equity (5% to 2%) given to those who leave before their one-year cliff.

Equity Distribution and Founder Transitions

When a founder leaves or is fired, they should retain no more than 5% of the company's equity to motivate remaining employees and founders.

It's reasonable for a fired founder to receive a small severance, while leaving founders typically do not.

All founders, regardless of their departure, should resign from the board and give proxy voting rights to the remaining founders.

Equity and Co-Founder Dynamics in Startups

Co-founders play a crucial role in executing the company's vision, and their equity should reflect their ongoing contribution.

The difference in starting dates or the need for a salary should not be the primary factors in determining equity.

Successful founders think long-term, considering their co-founders' needs and providing both a livable salary and motivating equity.

The Role of Equity in Motivating Startup Founders

Equity is used by founders as a tool to motivate their small teams to work hard, rather than being hoarded.

Common bad advice includes performance-based equity and considering part-time founders, which can lead to unclear goals and lack of commitment.

Dynamic equity agreements and fancy formulas are discouraged, as clear vesting and cliffs provide better protection and motivation for founders.

The Importance of Co-Founder Equity in Startups

Co-founder performance and commitment are crucial, and vesting cliffs provide downside protection while allowing for generous equity distribution.

Successful companies often have one founder who stays long-term, but the early years and co-founders' contributions are vital for the company's initial success.

Being generous with co-founder equity is essential for creating a strong foundation and increasing the chances of building a successful business.