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Y-Combinator Guide: How to Split Equity between Cofounders & When You Should (and Shouldn’t) Split…
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🌈 Abstract
The article discusses the common mistakes founders make when splitting equity among co-founders, and provides advice on how to approach this important decision.
🙋 Q&A
[01] Founders' Mistakes in Splitting Equity
1. What are the common mistakes founders make when splitting equity?
- Splitting equity based on early work, such as:
- Coming up with the original idea
- Starting work before co-founders
- Taking a salary while co-founders did not
- Being older or more experienced than co-founders
- Bringing on co-founders after raising funds or launching an MVP
- These lines of reasoning are flawed because:
- Small variations in the first year do not justify massively different equity splits in years 2-10
- Startups often fail, so motivating all founders is important
- Unequal splits can signal that certain founders are not highly valued, which can deter investment
- Startup success relies more on execution than the original idea
2. What is the author's advice on splitting equity?
- Split equity equally (or close to equally) among co-founders
- These are the people you will work closely with for 7-10 years to build the company
- Equal splits signal that all founders are highly valued
- If you aren't willing to give your partner an equal share, perhaps they are not the right partner
[02] Importance of Equal Equity Splits
1. Why does the author believe equal or near-equal equity splits should become standard?
- All the hard work is still ahead, so small variations in early contributions do not justify large equity disparities later
- Giving founders larger equity stakes can increase their motivation and drive, which is important for startup success
- Investors view founder equity splits as a signal of how the CEO values their co-founders, and unequal splits can deter investment
- Startup success relies more on execution than the original idea, so the equity should not overemphasize the initial concept
Shared by Daniel Chen ·
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