How Much Equity to Give Your Cofounder - Michael Seibel

Introduction

This tutorial provides insights on how to effectively split equity between cofounders, as discussed by Michael Seibel of Y Combinator. Understanding the nuances of equity distribution is crucial for maintaining motivation and ensuring a successful partnership in your startup.

Step 1: Maximize Motivation Through Equity Splits

• Aim for equity splits that incentivize all cofounders to work hard and remain committed.
• Consider the unique contributions and roles of each cofounder when determining equity distribution.
• The goal is to align everyone’s interests toward the success of the business.

Step 2: Implement Safety Mechanisms

• Use vesting and cliffs to protect both the company and cofounders.
  • Vesting allows equity to be earned over time, encouraging ongoing commitment.
  • A cliff is a period before any equity is vested, typically lasting 1 year, ensuring that cofounders demonstrate their dedication before receiving equity.
• This structure helps mitigate risks if a cofounder leaves early.

Step 3: Be Generous with Equity

• Consider giving a more generous equity share rather than being stingy.
• A higher percentage can foster loyalty and motivation, as cofounders feel more invested in the company’s success.
• Strive for a balance where all cofounders feel valued and rewarded.

Step 4: Evaluate Equal Equity Splits

• While equal splits might seem fair, they can sometimes lead to issues if contributions are unequal.
• Assess each cofounder's involvement, skills, and commitment before deciding on splits.
• Open communication about expectations can help avoid misunderstandings.

Conclusion

When splitting equity among cofounders, focus on maximizing motivation, implementing safety mechanisms like vesting and cliffs, and being generous with equity. Ensure open communication regarding contributions to prevent potential conflicts. By following these guidelines, you can establish a strong foundation for your startup partnership. For further assistance, consider utilizing Y Combinator’s co-founder matching platform to find the right partner.