There is no one best way to divide equity among co-founders and set founder salaries.
I am generally an advocate of one for all and all for one. Keep the equity equal among founders and keep your base-salaries the same. I have found it tends to reduce these issues as distractions while creating a stronger sense of team. Is it perfect? Nope. But, it has worked pretty well for me.
Here is a good summary of the pros and cons of a fixed approach versus a more dynamic, situational approach.
The key is to have a serious discussion among co-founders before the business is up and running, when everyone is still friendly and everything is still more or less hypothetical. Talk through the various models and don’t come to a resolution until you reach full consensus among the founders.
These two approaches of fixed and dynamic equity are interesting because you’d think dynamic would be the most common because of fairness, but I can see the fixed equality model being used because of how simple it is.
I’m glad I was able to read this article. I’ve been really interesting in the equity parts of business and business partners. This set all the goals and ways to go about even though there isn’t technically a right way to go about it. One way I read through this article is to keep everything equal, even though this might not work in every instance it could work for a certain group of copartners. Every person apart of the business needs to have a serious conversation around this particle detail because in the end equity is more than anything someone would want in the end.
I completely agree that the biggest/most important part of this, whether you want to split things equally or not, is talking about it all ahead of time. I can see how choosing a fixed split may cause issues if one partner begins to fall behind and brings less to the table as the business grows. But I can also see how choosing a dynamic model could cause one or more partners to begin to focus too heavily on how to measure their own success, rather than simply focusing on finding that success. I don’t think it’s an easy answer and I definitely would want to wait until I have the business and the partners before making my mind up about which I prefer, because each situation may be slightly different, and may call for a different response.
Deciding how to split equity seems to a challenging, but crucial agreement. The dynamic model makes the most sense to me because roles, time, and investments by each party can change over time. No one wants to be tied to an agreement that doesn’t reflect their current responsibilities. This model could be a fair way to avoid that.