r/startups • u/cryptooastronaut • 9h ago
I will not promote How to split equity between 3 founder? I will not promote
Hi guys, this is more of a general question but me and my friends are all new to this and I'd like to hear from people who went thru similar situation.
3 of us started a company together, we're friends. CEO had the idea, who then approached the friend who was appointed as COO and they approached me to be the CTO and build up the app. I did build the app, and we decided to discuss the equity distribution once we've worked a bit and seen how much we contribute.
Now, we had the discussion last night. The results were: CEO 40%, CTO 30% and COO 30%. We're starting with $5000 initial investment where I don't pay anything, CEO pays $2750 and COO pays $2250. I was happy with the distribution, somewhat, but then again,
- I built the entire app. It'd probably cost them more than $5000 to make the MVP of an food tech app similar to (for the argument's sake, uber eats)
- The CEO did have the idea, so I don't mind the CEO getting bigger share of the pie.. but the COO isn't contributing much yet.. I feel like 30% for me might not be fair compared to him getting 30% as well considering the effort we put in to this date. But COO will have a lot on his plate when work starts. But that's still a huge risk considering it's in the future. The COO brings political backings and connections in the country, which we'll need to survive in the political situation of the country we're in, but still, I'm making the app.
- CEO 40% and COO 30% will give them outright majority in decision making. Which as friends doesn't seem as bad but this could someday turn into a lucrative business and bite me in the bottom.
So, do you think the 40-30-30 split is fair? Should I push for more? Am i overthinking this about the COO getting more than what he should as of now? COO is my best friend.. or you could say one of my closest friends.. but business is till business
Cause I do own the IP, I'm the only one with access to the codebase and $5K isn't a big deal for me.. so I won't lose anything if I back out of the team with my IP.. I basically hold all the leverage. But I don't want to be an asshole.. I want to be practical and fair to me and my friends. Please suggest what I should do~
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u/SiOD 8h ago
The split seems fine, you could argue for 34,33,33.
If you're concerned about performance, make a vesting schedule for _everyone_, that way if someone isn't pulling their weight (including you) they can be removed, VC's will want this anyway.
You don't seem too far down the road to have this level of mistrust and paranoia, sit down and discuss what the expectations are for how much time and effort everyone is planning on putting in so you're all on the same page.
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u/cryptooastronaut 38m ago
I'm not feeling valued. 33 would be fine, 30 would be too.. but they're not seeing my point. I'll try dialogue for a bit, but I'm not budging
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u/TradeSeparate 4h ago
Equal split, vesting cliff and a strong SHA to prevent 2 of you randomly pushing the other (explicit clauses that trigger it etc).
Why? Is there any good reason for one founder to have 33% more equity? Down the line it could lead to 2 of you feeling under valued and thus friction. Ensure that your SHA covers equally splitting things, voting, and what cant be done. Eg what if someone decides they want a massive salary?
Also ensure minimum hour commitments from each founder and contracts to cover KPIs.
Been through this in the past.
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u/Imontoyoutoo 8h ago
you created significant value and deserve equity that reflects that. the political connections are valuable but speculative. push for at least 35%, and don't settle for being a minority partner in something you built..
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u/timeforacatnap852 9h ago
On the face of it the split seems OK however I think what you need to consider is the vesting period the cliff and any conditions under which equity is vested? For example you could pay the vesting to actual performance and results rather than simply based on time and in your case, given your concern about the CEO that’s something that I would’ve considered.
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u/Electronic-Cause5274 7h ago
You’ve already created the product, so your contribution is real and measurable. The CEO’s idea matters, but execution is what actually gives the company value. The COO’s political backing might be huge later, but right now it’s still just potential.
The 40-30-30 split isn’t terrible, but it does leave you as a permanent minority. If the other two agree on something, you can always be outvoted, even though you built the core of the business.
A fairer way would be either equal splits or at least nudging your share closer to 35%. On top of that, add a vesting schedule so everyone only earns their equity if they keep contributing. That way it stays balanced without harming the friendship.
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u/cryptooastronaut 20m ago
Thank you for you supportive words, it means a lot when things seem darker outside. I'll keep your advice in mind :)
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u/Hisoka548 6h ago
You could use a scoring board following who brings which values to the startup and set up the share accordingly, I used a matrice for my previous venture (search & recruiting founders for startups), i could send it to you if it might help, lmk if you're interested by it (its in french but could easily be translated).
It's always a bad idea to do a fair split 33/33/33 because nobody never brings the exact same values as cofounders.
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u/jcl106 5h ago
Rather than discussing it about the job, I would discuss it about work time. If you dedicate 8 and the COO 4. The proportion would not be fair.
But to be honest, 30% that entry is fine. You can agree when the project is more advanced to make another assessment.
Luckily I haven't had to go through that I suppose, but I have considered it many times. And I would do it for work time. Maybe I'm wrong from inexperience, but it's how I would do it.
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u/Professional_Mix2418 4h ago
Three founders, equal split. But think wider than this. What is to happen with the IP that you are bringing in? How is that being valued? And what about a cliff and vesting for the split to protect everyone in this? What happens when someone doesn't want to participate anymore? What happens when someone dies?
And then still looking further down the lines, what wil the simulation be for other key individuals? Keep some aside for sweat equity? What about a future ESOP? Or how will you approach external investment if you need that?
Now is the time to sort this out. But if you have three founders that don't start equal then that will cause issues down the line.
BTW. I've got a feeling of deja-vu ;)
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u/OwnDetective2155 4h ago
30/30/30 4 year vest, 1 year cliff 10% for contributions till raise: E.g. building MVP % Generating sales % Raising investment %
I’d also say you don’t need a coo at the start. The other 2 should be doing sales and raising investment.
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u/Natural-Ad-9678 46m ago
The real problem isn’t the distribution, its that you did the work before this was settled.
Ownership and contribution expectations should be defined before a single line of code was written, otherwise you end up here, a bunch of your time and expertise used, and now the split doesn’t seem worth it…
Push for an equal split, or ask for your time to be compensated some other way (50% of profits after X milestone until Y compensation is reached)
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u/cryptooastronaut 26m ago
I realized it late, but it did play in my favor. The product is my solo creation, I own the IP. If they wanted to screw me over, they should've come up with a better plan before
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u/garma87 5h ago
Im a big proponent of equal splits (33-33-33). Everyone should contribute equal in their domain.
If the CCO isn't contributing yet I think that's a red flag not related to equity. There should always be something to do to move faster. It sounds like you fell into the trap of 'build first talk to customers later'. He should be in the market right now.
I think 'being the CEO' shouldn't justify getting more equity. Ideas aren't worth anything and having the idea should never have equity value. Execution is the only thing that matters.
So, 40-30-30 isn't that bad, so you could go for it.
But whatever you do - Do use vesting schemes. If both the CEO and the CCO havent contributed anything meaningful yet, the change is very high that one of them won't be able to cut it later, and that leads to a LOT of issues. You want to be able to part from people. standard is 4 year vesting with 1 year cliff and I would definitely stick with this. I have used this many times in the past and I would consider it essential.
Also, you could include in the SHA that major decisions are made with 80% majority. That's what we have and it works fine.
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u/cryptooastronaut 34m ago
This is very helpful advice, thank you. I'm not trying to project problems in the future, but problems come up whether we like it or not. I need to be safe!
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u/Familiar-Release-452 8h ago
As far as splits between 3 founders go, this is as fair as you could get. And considering you were the third person to be added on… yes, you’re the CTO and the builder, but I wouldn’t ruffle feathers over a few percents.
As for majority decision making… no matter how you slice it, two founders will always overrule a third in the case of a disagreement…
If you are particularly concerned about major disagreements and the real possibility of it… then that’s an entirely different matter.
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u/cryptooastronaut 22m ago
Yes, I was overthinking eearlier and it occured to me. So I proposed unanimous decision making required for major decisions like hiring, firing, sell or issuing of shares and accepting funding. 33% will put them on the same like as me
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u/Immediate-Alfalfa409 7h ago
Frankly ….40-30-30 also leaves you outvoted. If you want to keep it fair without hurting friendships…push for a bit more equity or set up vesting so everyone earns their stake. Better to sort this at the earliest or it will get complicated with time
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u/brava78 7h ago
If I understand correctly, your engineering contribution is central to the business. That means you're basically building it up, doing the "core" work. If I were you, I wouldn't do it without at least 50% equity, and that is still too low tbh and assuming the other two founders will handle everything non-engineering.
Having an idea is not that impressive or worthy of so much equity. It's execution that matters. So 40% to the CEO is a little too much and I would need to understand what his contribution will look like.
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u/the_timps 5h ago
This sub lives on two extreme opposite sides of the line.
When a tech guy posts like this, people say "You deserve more, you built the whole thing".
When the CEO posts and says "My tech guy is demanding 25% for building it" there's replies saying "No way he doesnt deserve more equity, you could have hired someone to code it for you and give them no equity at all".And honestly the second is the more true one.
CTOs brought on later in the process when the idea is grounded and concrete aren't being given equity because they're the only one who can build it. They get a small piece of equity in lieu of payment because the business doesn't have money now.Most of them won't be involved in decision making, guiding and growing the business. And that sounds like it for OP too. CEO and COO in there already? OP is a tech hire with a generous share.
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u/cryptooastronaut 28m ago
Usually I'd agree, but unlike the other tech guys, I can fund it myself. I saved them money in terms of building the app, which could be done for cheap, but I don't think you can outsource this to India and get a competitor to, for example, Uber Eats or DoorDash for $5K or less, which is their contribution to the project as the startup capital.
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u/thefragfest 8h ago
Think about it like this: if this were to really get some steam and start taking off, would you three all be contributing around the same amount as each other (assume there’s requisite funding for all of you to be full time)? The answer to that question is almost always yes (unless you have a slacker cofounder).
Equity distribution should be based on future contributions (applied with a 4 year vesting schedule with 1 year cliff), and so it should almost always be split equally between all founders, because there is far more work ahead of you than behind you.
And just to be clear, “coming up with the idea” doesn’t mean jack shit. Execution is the only thing that matters, and the idea is going to change according to what you learn from the market, with input from all of you. The original idea is worth basically nothing.