Startup Equity Splits Are a Calculation, Not a Negotiation

One of the biggest misconceptions startup founders have is that equity ownership needs to be negotiated in advance of any work being done. This problem is easily observable if you rely on facts instead of opinions

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One of the biggest misconceptions startup founders have is that equity ownership needs to be negotiated with one another in advance of any work being done. This approach virtually guarantees that a potentially devastating agreement will be made.

The best way a founder can avoid sharing equity is if he or she invests enough personal capital to simply pay everyone a fair market salary. Most people who have jobs are happy enough getting paid and don’t ask for equity.

Related: Ask a Startup Lawyer: How Should You Manage Co-Founder Equity?

In a bootstrapped startup, however, founders may not have enough cash to bankroll the company and instead rely on equity to compensate people for their contributions. So, with the best of intentions, founders sit down to negotiate their split with each other, often with the guidance of well-meaning advisors or lawyers. Their goal is pretty much universal: to be fair. Most founders want the split to be fair. Unfortunately, when the negotiations start, the goal of being fair is doomed from the beginning.

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