Dealing with the equity split conversation with a co-founder
Jason Greenberg of the Leonard N. Stern School of Business led a co-founder issues discussion with Stephen Cary, Elliot Cohen, Lesa Mitchell, Elizabeth Iorns and Jonathan Bloom at a Life Science Ventures Summit hosted by the Kauffman Foundation(0:33:44-0:40:46).
According to information presented by Greenberg, equity will be split more equally when:
- Initial financial capital investments are the same
- Founders have similar levels of industry experience
- All founders are first timers
- Equity is split early in the process
- Founders are friends
- Team is smaller
Greenberg asked the panel what they experienced on the subject of equity splits from their co-founder history:
How do you determine who gets what slice of the equity pie? - Panel answers varied from even split to splits based on future work commitment. "I'm the CEO and I came up with the idea of the company and I split absolutely equally among the three founders," said Iorns.
What process do you use? - It is easy for greed to show in these conversations, and the panel believed it is a key to ask the team what is important to the company in order to designate values. "Mostly for me, this is just a test to see if the team can get along...Companies where I see this is a hard conversation basically never succeed," said Cohen.
When do you have the conversation of equity splits? Even though there was no unanimous answer, the panel agreed that it is better to have the conversation sooner rather than later. "The key is you build it up front and have the discussion, but then you really allow yourselves to be flexible and realize it's going to come up again and it's safe to have that discussion," said Bloom.
Weekly Wisdom from Kauffman is a regular feature on eMed highlighting helpful advice from the Kauffman Foundation.