How should equity be split in a startup?

[Startup Questions]

This is a question asked by an anonymous member at our most recent event in London.

[Harry]

Splitting equity in a startup involves several key considerations:

• Founders’ Contributions: Base the split on each founder’s input, including the initial idea, financial investment, and time.
• Roles and Responsibilities: Consider ongoing roles, giving more equity to those with greater responsibilities.
• Future Commitment: Allocate more to founders committed long-term.
• Vesting Schedules: Use a vesting schedule (e.g., four years with a one-year cliff) to ensure long-term commitment.
• Early Team: Reserve equity for advisors and early employees to motivate them.
• Market Standards: Research industry norms to ensure fairness.

Discuss these factors openly to reach a fair and motivating equity distribution.

[James]

It depends on the roles and contributions of each co-founder or early team member. Usually, the split reflects the value each person brings, whether it's money, time, skills, or connections. It’s important to have honest conversations early on and use a vesting schedule to protect everyone if someone leaves. Be fair, but also recognise who's taking the most risk and putting in the most work.