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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I have one question here: is the junior partner a cofounder who is irreplaceable for this enterprise? Then you should split it evenly; thirds if X is 3. 8 years from now in success case you’ll be known ONLY for current adventure, and the supermajority of value created is future.
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Separately from questions of fairness, perceptions of fairness also matter. You do not want, 18 months from now when going through a periodic tough time, for one founder to constantly feel like their efforts are “worth less” and wonder if they should just push reset button.
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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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