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November 16, 2004
Dividing Equity Between Founders
TJ's Weblog has a link to a Q&A piece at Venturecoach.com on how to tackle the sticky issue of dividing equity between the founders of a new venture. The key issues include:
1. Time: This includes time with the company and time put into the company. The more of either you put in the more equity you should get.
2. Power: He recommends that someone hold at least 51% of the stock so that deadlocks are avoided. While this can be good advice, I have seen consensus work in other cases. Consensus requires a lot of preparation and discussion ahead of time to make sure it will work.
3. Money: Even though it seems the most obvious, any money needs to be valued relative to all of the other non-monetary contributions in this list.
4. The rest: Then there are all of the other issues to consider including expertise, connections, intellectual contribution, and so forth, which can really muddy the waters.
The other good word of advice in this piece is to keep the number of partners to the absolute minimum. Each of the issues above will need to be negotiated among each of the prospective partners.
Posted November 16, 2004 06:02 AM
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at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
