Table of Contents
Key Takeaways
- Fair equity splits consider multiple contribution types
- Weightage factors help balance different inputs
- Regular review prevents future disputes
- Documentation is crucial for clarity
- Vesting schedules protect all parties
Quick Reference: Equity Split Factors
| Contribution Type | Common Weight Range | Key Considerations |
|---|---|---|
| Time & Commitment | 20-40% | Full-time vs Part-time |
| Capital Investment | 20-40% | Cash + Resources |
| Intellectual Property | 10-30% | Patents + Know-how |
| Experience & Network | 10-20% | Industry Expertise |
Understanding Equity Splits
Fair equity distribution is crucial for long-term business success:
- Contribution Types: Time, money, skills, IP
- Commitment Levels: Full-time vs. part-time
- Future Value: Experience and network
- Risk Sharing: Early vs. late joining
How to Use the Calculator
Our calculator helps you determine fair equity splits:
- Add Contributors:
- Names and roles
- Contribution types
- Commitment levels
- Set Weightages:
- Time and effort
- Capital investment
- Intellectual property
- Experience and expertise
- Calculate: Get detailed equity distribution analysis.
Equity Split Calculator
Understanding Your Results
The calculator provides comprehensive insights into equity distribution:
1. Split Analysis
- Percentage allocation
- Contribution breakdown
- Relative value assessment
- Comparative analysis
2. Visual Insights
- Pie chart distribution
- Radar chart of contributions
- Strength analysis
- Growth opportunities
3. Recommendations
- Vesting schedules
- Milestone-based adjustments
- Future dilution considerations
- Legal documentation needs
Equity Split Best Practices
1. Fair Valuation
- Consider all contribution types
- Value future commitments
- Account for opportunity costs
- Include risk assessment
2. Documentation
- Written agreements
- Clear terms and conditions
- Vesting schedules
- Exit clauses
3. Regular Review
- Performance milestones
- Contribution tracking
- Adjustment mechanisms
- Dispute resolution
Common Scenarios
Different business stages require different approaches:
- Early Stage Startups
- Equal splits among active founders
- Higher weight on time commitment
- IP protection consideration
- Future dilution planning
- Growth Stage
- Value-based distribution
- Strategic investor allocation
- Employee option pools
- Performance-based vesting
- Established Business
- Market value consideration
- Professional valuation
- Complex cap tables
- Multiple stakeholders
Need help structuring your equity split? Schedule a consultation with our expert team at Business Initiative. We provide comprehensive guidance on equity distribution, vesting schedules, and legal documentation.
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FAQs - Frequently Asked Questions About Equity Splits
What is a fair equity split between co-founders?
A fair equity split should be based on each founder's relative contributions, commitment level, and value brought to the company.
While 50/50 splits are common, they aren't always optimal.
Learn More...
The key factors that determine a fair equity split include:
- Time commitment (full-time vs part-time)
- Capital contributions and personal risk
- Skills, expertise and experience
- Intellectual property brought to the company
- Network and industry connections
A thorough evaluation process should consider both tangible and intangible contributions.
Common splits range from 50/50 to 65/35 depending on the relative value each founder brings.
The split should incentivize long-term commitment while acknowledging initial contributions.
Regular review periods can help adjust equity based on ongoing contributions.
How does vesting work and why is it important?
Vesting is a process where founders earn their equity over time, typically 4 years with a 1-year cliff.
Learn More...
Vesting is crucial for protecting both the company and co-founders by ensuring long-term commitment.
The standard vesting schedule includes:
- 4-year total vesting period
- 1-year cliff (no equity until after first year)
- Monthly or quarterly vesting after cliff
- Potential acceleration clauses for acquisitions
This structure prevents situations where a founder leaves early with full equity.
The cliff period ensures founders demonstrate real commitment before earning equity.
Acceleration provisions can protect founders in case of early acquisition.
What percentage of equity should be reserved for employees?
Companies typically reserve 10-20% of equity in an Employee Stock Option Pool (ESOP).
Learn More...
The size of the option pool depends on several factors:
- Company stage and growth plans
- Expected hiring needs
- Industry standards
- Competitive landscape for talent
Typical equity grants by employee type:
- Early engineers: 0.5-2%
- Senior management: 1-5%
- Key executives: 2-7%
The pool should be large enough to support 12-18 months of hiring.
Regular review and potential expansion of the pool may be needed as the company grows.
Consider the impact of pool expansion on founder and investor dilution.
How should equity be split with investors?
Investors typically receive 15-35% equity per funding round, depending on valuation and stage.
Learn More...
The equity split with investors is determined by:
- Company valuation
- Amount of investment
- Stage of company
- Market conditions
Typical ranges by funding round:
- Seed round: 15-25%
- Series A: 25-35%
- Series B+: 15-25%
Founders should plan for dilution across multiple rounds.
Maintaining founder control (>50%) through Series A is often advisable.
Anti-dilution provisions and pro-rata rights can impact future rounds.
What legal documentation is needed for equity splits?
Key documents include shareholder agreements, vesting schedules, and IP assignments.
Learn More...
Essential legal documentation should include:
- Shareholder Agreement
- Stock Purchase Agreements
- Vesting Agreements
- IP Assignment Contracts
- Board Resolutions
- Cap Table
- 83(b) Elections if applicable
These documents should clearly outline:
- Equity ownership percentages
- Vesting schedules and terms
- Voting rights
- Transfer restrictions
- Buy-sell provisions
Professional legal counsel is recommended for proper documentation.
Regular updates to documentation as ownership changes.
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