In the startup world, hearing about equal equity splits among co-founders is common. However, this approach doesn’t work for part-time co-founders.
This article explores the reasons why equal equity rarely works for part-time co-founders and offers a data-driven approach for determining a fair equity amount. As well as three key factors that co-founders should consider when determining equity splits: time spent on the startup, unique value added to the business, and the economic opportunity cost.
By using this approach, co-founders can avoid conflicts and resentment and ensure that the equity split reflects each member’s value and commitment to the company.
The Challenges of Part-Time Co-founders: Why Equal Equity Rarely Works
Part-time co-founders who work for equity face significant challenges in startups. Studies show that, on average, part-time
own 20-30% less equity in startups than their full-time counterparts. There are a few reasons why equal equity splits rarely work for part-time co-founders:
4 Reasons Why 50/50 Equity Split Rarely Works for Part-Time Co-Founders
Time commitment
Startups require an immense time commitment to be successful, often 60-80 hours a week or more. Part-time co-founders simply can’t match the time their full-time counterparts put in, which means they contribute less value overall. Their equity should reflect this reality.
Opportunity cost
Full-time co-founders are sacrificing salary and career opportunities to focus on the startup. Part-time co-founders still have their primary jobs and careers, so they are making a different level of sacrifice. Their equity should account for their lower opportunity cost.
Value added
In addition to their time and effort, full-time co-founders can build more relationships, get more done, and drive more progress. This means that they add more value to the fledgling company. Part-time co-founders won’t add as much value in a limited time commitment, which would justify them receiving less equity.
Replaceability
It’s hard to replace someone who makes a startup their sole focus and priority. They know the ins and outs of the business and become the go-to source for information. On the other hand, part-time co-founders can only focus as much as their other responsibilities allow, making them more replaceable.
While part-time co-founders deserve equity for their contributions, equal equity splits are difficult to justify for the above reasons. Startups need to determine the equity in a data-driven way based on each co-founder’s value, time, opportunity cost, and replaceability. Otherwise, resentment and conflict can emerge. They are balancing equity and commitment for the good of the startup.
CÒN PHẢI COI TIẾP
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