14 Ways of Splitting Equity With Co-Founders or Employees Without Giving the Company Away

1. Founder Vesting 

jeff epsteinIt’s imperative to have founder vesting with multiple co-founders. Founder vesting implies that the longer the founders work together, the more they earn (typically over 3-4 years). It’s a pretty standard practice and solves a lot of potential problems that may arise if one of the founders chooses to leave or is removed from the team. – Jeff EpsteinAmbassador 

 

2. Vesting Over Time 

John RoodEveryone should be on a vesting schedule, including co-founders. The worst situation is to have someone quit and walk away with a bunch of stock. Unfortunately, this happens all the time. Protect yourself by having everyone on a multi-year vesting schedule. – John RoodNext Step Test Preparation 

 

 

3. Grunt Fund 

Lane CampbellInstead of signing a static agreement with your co-founders, it makes more sense to use something like the Grunt Fund by Mike Moyer to allocate equity based on who is contributing to the business. It’ll help set the venture on the right path. – Lane CampbellCreately 

 

 

4. Performance Incentive-Based Equity 

Dustin CavanaughA great way to structure equity assignments for early stage founders and employees without giving away the farm is to establish set performance-based metrics. This motivates and incentivizes all stakeholders to reach their performance-based goals while simultaneously protecting the company from assigning equity where it is not earned or deserved. – Dustin CavanaughRenewAge 

 

5. Contracts 

Nicole MunozEquity often dictates who makes the decisions within your company. Decide who’s in charge first, and then develop contracts that make it clear who is responsible for what aspects of the business. You can easily justify a higher equity stake if you are also responsible, as CEO, for the difficult work of growing your company. –Nicole MunozStart Ranking Now 

 

6. Discount to Market 

Nicolas GremionRather than flat out giving out stock based on position or performance, sell shares to founders and employees at a steep discount (AKA the insider deal). Perhaps go as far as making it a rule that, for example, during their first year, everyone has to invest 10 percent of their salary back into the company. They’ll be motivated to see it grow while the company itself benefits from the extra cash infusion. – Nicolas GremionFree-eBooks.net 

 

7. Equity Calculator 

Ajay YadavThe simplest way to do split equity is to use the co-founder equity calculator tool on foundrs.com. I recommend not splitting equity 50/50 because it will help prevent delays and conflicts in decisionmaking, allowing you to move the company forward more quickly and under a unified vision. – Ajay YadavRoomi 

 

 

8. Equally 

David CiccarelliMy partner and I are in a unique position because, not only did we found the company together, we’re also married. Since marriage is an equal union, we took the approach that equality should apply in the company as well. Our first agreement was a 50 percent split when we established the first legal structure, a partnership. When we incorporated, we kept the same 50/50 split. – David CiccarelliVoices.com 

 

9. Standard 10-15 Percent Stock Option Plan

Kristopher JonesAllocating equity to key employees assumes – in the future – you intend to raise capital, sell your company or take your company public. Therefore, it’s critical to align your personal interests with those of your team. Based on experience raising capital, as well as buying and selling multiple companies, I recommend that you implement a standard 10-15 percent equity pool in the form of stock options. –Kristopher JonesLSEO.com 

 

10. Four Years With One Year Cliff 

Hongwei LiuAs every founder knows, the challenges a startup faces are completely different every six months. It’s hard to know if someone, be it a founder or early employee, is going to grow with the company, if their skills on Day 1 will be as valuable on Day 1,000. Somake sure everyone is vesting (four years with one year cliff is standard). And don’t be afraid to have an annual heart-to-heart between founders. – Hongwei Liumappedin 

 

11. Hybrid System 

Joshua LeeWith co-founders, I like to split the company evenly. This aligns us because it’s in each of our best interest to apply 100 percent effort and creativity to the company’s success. For early employees, I like to award ”phantom shares” that vest based on timelines and reaching agreed on performance milestones. Chobani yogurt CEO, Hamdi Ulukaya, followed a similar path with his employees.  – Joshua LeeStandOut Authority 

 

12. Milestone-Based 

Raoul DavisDivvying up equity to team members can dilute the valuation of the company.  The best way to justify the equity that was shared to an investor is by tying it to performance.  If team members earned equity based on completing significant milestones, it becomes much more digestible. – Raoul DavisAscendant Group 

 

 

13. Deferred Rewards 

Brandon StapperYou can assign bonuses that are redeemable at any schedule you like. Shares can be non-redeemable until retirement, for example. On the other hand, you don’t want to give away too much fluff. Employees deserve to enjoy their compensation as they see fit. – Brandon Stapper858 Graphics 

 

 

14. Revenue Sharing Rather Than Equity 

Blair ThomasCo-founders should always have skin in the game, but early employees that are seeking wealth beyond their normal salaries can be incentivized with revenue sharing rather than with raw equity. This gives them the motivation they need to operate at high capacity and push the business forward without robbing the company of much-needed equity come time for investment or exit. – Blair ThomasFirst American Merchant 

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