• July 2018
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How much salary should I take and what percentage of equity can I ask for as a co-founder in a startup?

It really comes down to what both parties feel is “fair”, the company risk level at the time of joining (early days/no cash flow), and the time commitment each founder is putting in (full time versus part time). A good rule of thumb is to issue between one-third and one-quarter of your authorized stock to founders. How you allocate that pool among the founders is a separate question. Logically, the more you take in salary the less percentage of equity you should take and vice versa. That’s why you often hear about bootstrapped co-founders making no salary for years in order to retain precious equity.

Founders often assume that the best way to initially divide equity is to do so equally or in fixed splits. What that means is that a percentage of ownership is allocated among founders (or founders and employees) without changing. So whether you divide the pie in half, in thirds or however you allocate percentages, that share will remain the same (except, of course, that they’ll be proportionately diluted at each funding round).

It’s a pretty inflexible model and often leads to conflict and sometimes even a company’s extinction. That’s why innovative equity sharing models are becoming increasingly popular. The dynamic-split model is one variation that enables company owners to be more flexible in adjusting equity allocation according to the weighted contributions of each owner. I discuss these different models in more depth here, where you can learn more about how alternative equity allocation works.

As founder of a legal tech startup – LawTrades – we routinely help tech startups deal with these issues through our community of startup attorneys. If you need guidance on how much authorized stock you should ask for, whether you require preferred and common stock, and how to allocate stock to founders, please check us out. Also, feel free to message me with any additional questions you may have.

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