• December 2019
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What is a good way to determine the equity split for my startup?

Using one of Mike’s excellent points above I think it is important to focus on the quantifying the equity holder’s contribution to the venture and the amount of risk the individual is exposed to. Using this framework the question that will likely prove problematic is determining how best to quantify input and exposure to risk.

One method used to calculate input and arrive at an equity calculation is the dynamic equity split model which rather than dividing up equity based on what people think will happen, the equity is split based on what actually happens, i.e the actual input of the individual.

Research shows that a 50-50 split is correlated with dissatisfaction among stakeholders. As Noam Wasserman’s of Harvard University details general practice dictates that “founders who had the idea for the company get around 10 to 15 more percentage points of equity than co-founders. Founders who have led other startups generally get 7 to 9 extra points, and the one who becomes CEO gets from 14 to 20 extra points.” These data show that greater input and greater risk based on actual conditions results in a greater perception of fairness as opposed to speculative input and risk.

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