You’ve had a great idea for a start-up, found some like-minded people who are on-board and now need to decide how to split up ownership of your company. Inevitably the question comes up, ‘How much should co-founders own of the startup company?’. There are many different ways of answering this question but foremost in your mind should be how to ensure that your startup is a success. The most important element of achieving success is motivating the main founders of the company. While founders may think that belief in the idea for the company is enough motivation, ideas are not going to pay the bills – rather it is the hard work and drive of all the founders which will be instrumental in achieving success and thus monetary rewards. Co-founders should receive a split of the company that reflects their value and this will ensure they are as committed to the success of a startup as the principal founder.
Nonetheless, making decisions about how much co-founders should own is difficult. Most people might say simply give everyone an equal share and be done. This, however, is sometimes regarded as an immature approach by potential investors showing that a founder has not given enough thought to the individual contributions that the co-founders will make and their individual skills and how these should be rewarded. The distribution of equity in a startup should reflect the importance of the contribution made by each co-founder to the company and, while sometimes difficult to determine, will be the best approach to ensuring success.
The founder of a startup should ideally have a deep discussion with his co-founders to establish their skills, desires, motivation and what they are bringing to the company. Ideally, the contributions of co-founders should be able to be established as well as the responsibilities they have within the startup and their share should reflect this. Some think that the person that had the initial idea should receive the lion’s share of equity but an idea is nothing until it has been implemented – there are dozens of examples of startups with brilliant ideas that have failed in their execution of them.
The determining factor when deciding How much should co-founders own should be is expertise and time. That is, the knowledge that is required to bring an idea into being and the work and motivation required to do so, which usually requires a significant investment of time and effort. Previous experience and success, for example, can be an important factor in this decision. Personal, as well as financial, factors can be important as well: such as whether a co-founder leaving a successful job to join the startup, whether another is making a significant financial investment in the startup and so on. While not easy making these decisions carefully at the beginning can be an important determinant of the success or failure of a startup company.