If you ask a partner at Y Combinator how you and your cofounder(s) should split equity, most would probably answer with “evenly.”
But, interestingly, data from Carta shows that only 41% of 2-founder teams split equity evenly and larger cofounder teams tend to have even more unequal splits.
Why is this happening and what are the situations where a non-even split is appropriate? 👇
How to Split Equity between Cofounders
Most non-even splits happen for one of the following reasons. I’ve grouped them into “bad” reasons where the equity likely should have been split evenly, and “good” reasons where splitting unequally makes sense.
Bad Reasons to Not Split Equity Evenly
❌ I came up with the original idea / I’ve contributed more so far
Founders often give too much importance for early contributions. The average time before an exit for a startup is 7.5 years.
Whatever differences exist between the early contributions of cofounders typically wash out over time.
Even if you’ve raised a small amount of money or built and launched an initial product, over a long time horizon it’s not that big of a difference.
❌ I’m more experienced / senior than my cofounder(s)
If you’re not able to respect your cofounder(s) and their ability to contribute, then you likely are not a fit to be cofounders.
❌ This is just what we negotiated (subtext: I’m a better negotiator)
A good founder recognizes that negotiating more equity means nothing if the startup isn’t successful.
You’re better off landing on a structure that all cofounders will be sufficiently motivated by for thousands of days in row. Don’t try to “win” a negotiation for no reason.
Good Reasons to Not Split Equity Evenly
None of these are an exact science, but there are a few situations where it does make sense to not split equity exactly evenly.
✅ The Founding Team is Stubborn
This one doesn’t get talked about a lot, but it matters. If the founding team is naturally stubborn and finds it hard to compromise, the startup may be better off letting one member of the founding team be designated as the primary decision maker.
Speed is the most important advantage a startup has — you simply can’t afford to gt stuck in deadlock on important issues.
Look for this when you’re doing an initial test project with your prospective cofounder(s), and call it out after the fact before you have a conversation around equity.
In this case, I recommend keeping the split as close to even as possible but giving one cofounder (typically the CEO) a slight bump. In a 2-founder team, this would be something like 46% vs. 44% (with the remaining 10% reserved for an employee option pool.)
✅ The Startup Has Existed for Years
If a startup has existed for a long time, raised significant capital, and/or grown their product and team substantially already then there is justification to not split equity evenly with a new cofounder joining the team.
Granted, it’s rare that people who join at this stage are given the cofounder title, but it happens.
In these situations the amount of equity for the new cofounder should be inversely proportional to how far along the startup is (farther along = less equity).
✅ One Founder Has Invested Significant Capital Into the Startup
In some cases, even when starting a company together, one cofounder may propose injecting a large amount of their personal capital into the company.
If this happens after equity has been split, then this should be structured as an investment where the company sells shares to the investor (just like any other investment).
But if this happens before an equity split has been discussed or formalized, it’s totally fair for this cofounder to receive a larger split than the other(s). The exact split should be at least somewhat based on how much capital is being put into the company (more capital = larger share for that founder).
How to Protect Yourself
I left my last startup after 2.5 years. My former cofounder is still working on it. Do I deserve as much equity in the company as him? Definitely not.
Regardless of whether you split equity evenly or not, standard practice is to have equity vest monthly over 4 years, with a "cliff” after 1 year. If it doesn’t work out with your cofounder in less than a year, you don’t owe them any equity.
An ofter overlooked benefit of this is that it keeps all cofounders thinking collaboratively during the most stressful and tenuous early days of the startup.
You want equity to be a longterm motivator for yourself and your cofounder(s). This protects both you and the company. If a cofounder isn’t pulling their weight, vesting allows you to approach them from a position of strength — they have something to lose.
When to Solidify the Split
If you’re starting the company together, I recommend waiting at least until you’re sure you want to work together longterm. If you’re actively working together on the early parts of the startup, or another project, you should have the answer to this pretty quickly.
It’s a lot easier to “break up” before you get “married” by solidifying an equity arrangement. But don’t let the question linger too long.
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