Split Equity With Cofounders 50/50? Startups.com

should I split Equity with my co-founder 5050 oh man uh let me open by saying on startups.com we have an entire course on it's called splitting equity and it goes

deep on this topic it goes deep on this topic here's my my opinion and and I'll caveat this by saying everyone has a bias everyone has an opinion what I try to do when I'm giving this advice when I'm having this opinion is I try to not

just look at my own experiences which are generally good with co-founders but that of all other Founders as well we talked to thousands and thousands of Founders there's over a million Founders on the startups.com platform so we get to see a lot so what I try to do and I

know Ed you try to do the same is take the benefit of everybody else's experience sure but with all that said all that Preamble the first thing I would say is that this is the most expensive decision you're ever going to

make professionally why did you make it so easily yeah a lot of Founders do that you just said I don't want to give up investors more than 10 Perc but you just gave some random person that you met at a startup weekend and half your company

just because they said they they'd build an MVP over the weekend that happen like what is that process what do you think it's crazy because I think Founders don't look at Equity like Equity they

just look at it as participation points or something like that so they get desperate and they say I need a technical co-founder and then shotgun like I was reading Reddit oh my word like how many times do you see stories

of like I offered and there I have a technical person that I met I got them off of whatever website and I give 50% company or they're college buddies of mine now they're lazy and I don't know

if I want themm but now they have me held over a barrel like how many times have we seen that story well so many times and so over my 30 plus years of starting companies I've had a lot of co-founders now and I've had generally

good relationships with all of them I've only been in one situation maybe two where I've ever had a co-founder that I thought I felt was outworking me and I work like a madman so so that's saying a lot and it's funny I was just talking to

one of them yesterday one of my first company's Ad Agency that I started back in the '90s and you know we grew that to a large company and I was talking to him he and I this is like in the '90s when we were scaling this company would have almost like an informal competition of

who would be in the office first every day and I'm talking like 5 in the morning I'm not talking about like by 9 or 10 right I'm talking like the if the sun was up you came in way too late right wow yeah now now in for year like

for like a decade every waking hour and I'm not recommending this whatsoever what I'm trying to say is at no point in that relationship did I ever say that guy's not earning escap yes now how many

relationships do I see that look like that almost none almost none especially startups no that's what I'm saying right like I'm saying most of the folks that I see within year one not even year two

right then you're one of the quote marriage are like why why am I doing all the work like this person was super useful when we didn't know how to build an MVP but now we're trying to scale a company they've never had a direct

report how do they own half the company and I'm like yes exactly that you know I'm GNA throw something out there will and I think what we're saying is one don't make the decision willy-nilly this

is a very important decision and that's where Founders get in trouble how many times have we seen like I've seen totally great startups gets blown apart because the founders don't end up getting along and then one founder takes the patent one founder takes the website

you know and the existing software and like Nobody ends up with anything right and it's just that fighting but will I'm going to say that I always want to give my co-founder 50/50 especially if

they're in the early Inception stages if they come on as the founding team right after I've built the MVP everything like that oh then it's not a 50-50 conversation ever

but I want to give my co-founder 50/50 does it rarely work out that way in all my seven startups it's only worked out once and so I think that lends Credence to what you're talking about will here's what I would say for the stuff that

worked or didn't work for me I honestly don't think it it never came down to who my co-founder was I I think fortunately you know we we got along well enough that the the company was the problem not us so I'll take the the win on that

however what I always want people to understand is in the formative stages let's call it that first 6 to 24 months your still dating the idea and the co-founder you were not ready to get married okay so let me give that some

context Ed you and I started a company you and I known each other for a few years personally and we decided that that we're going to venture out and do this thing together okay there's a whole bunch of stuff that we don't know about each other okay some of it we actually

just can't know for example let's say we're both 25 years old and we're both starting the company you don't know that your girlfriend is about to get pregnant in six months o right you literally don't know that yeah and that's going to happen and and you guys are going to

start a family and all bets are off this is what I'm saying saying this isn't all like hey the other person's just terrible it's life happens but except it happens every single time okay other examples we get into this we're we're

we're 12 months into it uh 18 months into it and you're like dude I quit my job for this because I thought we'd have enough money coming in either through investors or through a revenue so that I could keep paying my mortgage but I'm

I've got like two months left to live financially I need to get out of this okay cool you own half the company so you're saying now you can just leave and go get another job and pay your bills which I get but how does that help me

exactly right and this doesn't mean being selfish I'm like I'm going to come to work for the same amount of equity you are except you're not going to come to work that's a big problem but it happens all the time and not only that

you might have to go hire somebody to come step in who can work all those fre hours and what are you going to give them when your cap table is jammed up with basically dead Equity every time I hear somebody say I'm about to give this

person Equity my first question is what are your other top three choices and I say that factiously the question is the point I know there are no other choices okay so play that out for a second imagine and I think the parallels matter

imagine you doing this in your in your dating life in your personal life okay and you're 19 years old and your son comes to you and says Dad I met the person in my dreams and you're like this is the first person you've ever dated

and he's like yep have you considered maybe dating someone else before you get married nope I met him a week ago it looks good everything works it's the same concept right where you're making one of the biggest Life Choices that

you'll ever make with no selection criteria whatsoever this the CTO qualification in almost every startup I see is that he was the only person willing to write the code

default yeah right and so that qualification earns them 50% of the company it's bananas if you think about it that this context there are other things that Founders can think about and

maybe you want to make some comment on that different mechanisms vesting schedules and cliffs very important operating agreements for example you got a vesting schedule in a cliff you don't get anything unless you stick around for

a year and then you're going to vest over 4 years on top of which operating agreement if I bring on a co-founder and I've had 50/50 relationship with them and I'm the CEO I have the right to fire

that co-founder it is written down as an employee yeah but I also get agreements in here and maybe I'm being mellan about this but because I've been burned so many times I say if I fire you as a

co-founder the board degrees Etc you walk with 5% Equity I don't care if you vested 25% and that makes us all really sit down and think about it it's kind of like that whole marriage thing like

let's agree on the vows let's agree on how serious it is who's going to take out the garbage where we're going to Vacation do we have in-laws living with us because this is going to be possibly till death to us part hopefully but when

you've got co-founders we're talking about a 10-year journey to get to that all Mighty exit possibly later and so hope for the best plan for the worst there are ways for Founders to do that there's a reason when investors put in

money they change all the terms in the operating agreement because there's no version where they're like he let's just see how it goes right I'll just I'll just give you a couple million dollars you'll get some percentage we'll just see how it goes we don't really need any

terms around it it's because when we get started when we first launch first off we don't have options so the person we gave 50% of our Equity to because they're the only person that can write code my joke about who else did you

interview no one it was literally the only option I had so it's not like I had 10 other options and I opted for this person to 50% it was the only way in my mind that I was going to get that done

at that time I get that I get that okay however we end up making these perennially bad decisions when we're most vulnerable yes so so when when founders come to me and they do quite a bit and they say hey I found like a

technical co-founder which tends to come up to most I found a technical co-founder and I'm trying to figure out what kind of equity stake to give to them here's what I say we'll get to the equity stake in a minute how much to give them the first thing I want you to understand is there's an almost certainty that within a year you're not

going to want them there like what do you mean like why wouldn't I want somebody building my my product you will just not necessarily that person right because you're going to find out they have a life situation they're impossible to work with you know their their expectations are bananas whatever you're

going to find out some and we need to make sure that before you pick any amount of equity you have a way out of it and you nailed it it's investing and and for some of you folks that that have never heard about vesting or a vesting

schedule Etc Google it look it up understand it it basically means you don't get all the equity until you hit certain milestones for the for the percentage once again I'm going to refer back to the startups.com site go find

the splitting Equity course and we go into Infinite detail about how to look at what percentage to give people based on I don't know things like contribution that you actually make not just random ass

percentages that you give to people because it looks it looks even on a pie chart and we talk about things like how much are you going to actually contribute how much you going to contribute compared to what I'm going to contribute over what period of time

there's a lot more to this too much to unpack here but trust me this stuff has been thought out it's probably the most valuable thing you'll ever watch or listen to because it could save you tens

of millions of dollars down the road well said