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Ask HN: 6 Startup Founders, What To Do About Equity

2 points by bertm ↗ HN
I am part of a new startup that was built out of Start Up Weekend. Startup Weekend is pretty much a weekend sprint of software development. The group of 6 is continuing with the company. This has brought up the question: How should we divide equity. My question to HN is what are the consequences of equity division (Further investment, Member moral, etc.); from having 6 equal owners to one with 51% and the others with less.

8 comments

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pg
Err on the side of equality. More important than the split is to have vesting with a cliff, because given the circumstances, some are likely to leave in the first year.
cperciva
Given the circumstances, I wouldn't be surprised if some people leave within a week, never mind a year -- but this makes me wonder: Why is a vesting cliff necessary? Someone who leaves after 2 weeks hasn't made much of a contribution, but it seems entirely plausible (to me, at least) that they've made 1/26th of the contribution of someone who leaves after 1 year.
staunch
I think the practical reason is that it's a drag having to keep them on the books/in the loop/contact for years.

As for the contribution, is it only 1/26th as difficult to run one mile compared with 26 miles?

gridspy
Or to put it another way: Every week you become a more valuable part of the team as you learn about your niche and solution and as you build a product and relationships.
cperciva
is it only 1/26th as difficult to run one mile compared with 26 miles?

I'd say that 1/26th of the effort of running a marathon is taking the first step, never mind the first mile.

yosho
what's wrong with dividing by 6 equally?

any sort of unequal distribution will mess with moral and effort

JacobAldridge
Dividing unequally != Unequal Distribution.

If some members are contributing much more (in terms of effort, time, cash) then dividing by 6 equally will also mess with morale and effort. This touches in to pg's point about cliffs (which I understand means when you leave, your equity leaves too) and jasonlbaptiste's point about clear roles and responsibilities.

If responsibilities are equal, so too should equity. It's possible to not define equity at this stage so that it can be fairly allocated at a future point based on actual contribution, but that can be messy and time-consuming, which again takes away from speed.

jasonlbaptiste
a) make sure there's a cliff b) define roles and responsibilities. the cto should have final call on tech matters, business on biz dev,etc. c) clearly designate someone to be a final call/leader type person. they should also have the board seat.

Equal equity is fine. It's the voting/power/decision making that comes with it. You'll end up with a startup bureaucracy where every decision needs to go through a 6 person committee. You will lose one of the ultimate attributes of a startup: speed

Personally, I'd also be asking yourself how you ended up with 6 founders and if all of them are "founders". Yourself included.