I was chatting with an early startup team yesterday and they had a reasonably common question, which I will answer here for benefit of others in similar situation: What should one do about equity split in a team of X where one is clearly the junior partner?
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“What if they’re not critical to the enterprise?” In most cases I will disagree with this, but I can imagine circumstances where e.g. they get a market salary from day one sourced out of revenue from an existing business or savings or money raised on a handshake previously.
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In one of those circumstances, you might have a “generous for an early employee” grant, but you have to be really, really clear between the N of you about the cofounder/employee distinction because people are going to ask and it really matters in some social situations.
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I am not thrilled about this, but in consensus SFBA culture, there is a pretty titanic gulf between last co-founder and first employee regarding questions like “Should an investor or prospective investor ever desire to talk to you 1:1?”
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(There is also a gap on that particular question of “CEO vs. any other cofounder” but if an investor talks to co-founding CTO w/o telling CEO that is cool but if they talk to employee CTO they *have transgressed.*)
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A thing about generous employee grants: professional money had definite views regarding the total employee allocation (options pool) and overspending on employee #1 will often result in them advocating for revisiting that decision later.
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End of conversation
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Thank you for discussing these situations. Very illuminating!
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also, when things go well (and efforts/contributions turn out to have been more evenly split than anticipated) the unequal apportionment of the gains can leave a bad taste
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On the flipside you see situations at late stage companies where some founders end up at exec level while others as individual contributors, which often breeds resentment as execs feel the original equity split doesn't reflect their more "critical" role
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there's a Joe Rogan podcast of lead singer from Smashing Pumpkins who was also the song writer & the lack of eqaul $ because he got song royalties built up lots of backbiting & destroyed their bandhttps://youtu.be/GLvqzWSRwnA?t=344 …
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