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What kind of cofounder gets the biggest stake in the company

Chris Seper on June 23, 2012 Source: Kauffman Foundation

Here’s a quiz you should take (I’ll give the “right answers” at the bottom):

Should co-founders have equal shares in the company at the start? And if not, how do you determine who gets more?

The more than 200 entrepreneurs, investors and other early-stage advocates had that question asked at this weekend’s Kauffman Foundation Life Science Ventures Summit in San Francisco. Overwhelmingly, the audience said co-founders should have different equity stakes depending on what they bring to the table.

How do you determine who gets what equity? That was a little more complicated. Attendees could choose from seven answers:

  1. Who came up with the idea
  2. Prior social relationships
  3. Research/tech skills
  4. Ability to raise funds
  5. Business acumen
  6. Social network – size and reach
  7. Executing the idea

Go ahead and rank these from least important to most important.

First, a little context. Research shows the idea person, no matter where they wind up in a company – CEO, CFO, chair, CTO, etc. – almost always gets a premium on equity for coming up with the idea. But they get more equity for the role they play in the business.

If the idea person is the CEO they will get 60 percent equity or more (compared to 42.1 percent if the CEO is not the idea person). And that is true down the line.

  • An idea CFO gets 30 percent equity (13.3 percent if not the idea person)
  • An idea chair gets 60 percent equity (35.1 percent if not the idea person)
  • An idea chief operating officer gets 50 percent equity (28.5 percent if not the idea person)
  • An idea chief technology officer gets 33 percent equity (27.6 percent if not the idea person)

How did the Kauffman summit attendees rank the seven areas?

  1. Executing the idea
  2. Who came up with the idea
  3. Ability to raise funds
  4. Business acumen
  5. Research/tech skills
  6. Prior social relationships
  7. Social network – size and reach?

How do your answers match up?

[Photo courtesy of SafeInternet.com]

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