The problem with equal equity

Key Takeaways

They hate this startup stat. Check this out. 46% of startup founders split the equity 50/50 and I think that's fair. But investors hate it. It's perfectly fair way a founder would want to do that and and and again and I agree. It avoids the [music] awkward fight on day one. You're both all in. It's a clean way to start. >> [music] >> But to an investor a 50/50 split sometimes signals something else. Again, to an investor this may signal that the founders may have skipped a hard conversation which is who's taking more risk, >> [music] >> who's full-time, who owns fundraising, who owns product and who breaks a tie. The real problem for them of a 50/50 split is not the fairness, it's the potential deadlock because when a company is under pressure you I mean they they they wouldn't want two founders with equal power [music] and no built-in way to break a tie. That could stall strategy, that could build resentment, and that's how a simple equity decision could turn into an operating problem for the company especially [music] when they're venture backed. Also, you know, effort may drift over time. You know, one founder may have to code very intensely at the beginning of the process. Another one may still have a job. Another one may become the face of the company and, [music] you know, spend the next two years fundraising. Like those contributions could drift and a static 50/50 split doesn't always adapt to the way reality changes. >> [music] >> And that's why investors don't like it. What they want to see is not necessarily an unequal split. That what they want is evidence that you actually thought this through. That you discussed the roles, the responsibilities, the commitment, the vesting, and what happens if one founder leaves early. [music] So, if you're doing 50/50 it's what I would do. Like I think it's fine. But don't do it because it's the easy answer. Do it because you've already had the uncomfortable conversation and you've built governance around it. Cuz to investors the red flag is usually not the split itself, [music] it's what the split reveals.