When should we split the equity between cofounders?

This is a complex decision with pros and cons.

Splitting earlier has the benefit of helping you attract key players who need equity incentive - because there is no cash and the only compensation is equity.  You can negotiate calmly before you are under pressure to split.

Splitting later has the benefit of learning more about cofounders' commitments and contributions.  It helps you solidify the strategy, know more about the business and therefore make better decisions about how the equity should be divided up.

There is one forcing function that will dictate the timing, which is when you need to file papers for incorporation.  So in a lot of cases teams will end up splitting earlier than later.

Was this article helpful?
1 out of 1 found this helpful


      This website and all posts and content are intended for educational purposes only and for no other purposes. This website does not and is not intended to provide legal, financial or tax related advice. Although we take great care to make sure that all of our information is accurate and useful for it intended educational purposes, if you have a specific issue for which you need actionable advice, please come to the Martin Trust Center in person to speak to one of our Entrepreneurs in Residence (EIR) or consult a licensed attorney or other professional. Despite the backgrounds and qualifications of our staff, mentors, lecturers, authors, EIRs and speakers no attorney-client, advisor, or other confidential/privileged relationship exists or will be formed between you and the Martin Trust Center or the Massachusetts Institute of Technology. Under no circumstances should any content be relied upon in making any decisions that could have any financial or legal impact(s).
Have more questions? Submit a request

Comments

Powered by Zendesk