Was this helpful?

“Unfortunately, many of our natural inclinations about equity splits are wrong or counterproductive, destined to cause problems in the long run, even when they seem eminently fair, wise, and peaceful in the short run.” — Noam Wasserman, Founder's Dilemmas, page 145

Suggested Readings

Founders School || Founder's Dilemmas || Equity Splits || Impact Guide (PDF).

Wasserman, Noam. The Founder’s Dilemma: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, New Jersey: Princeton University Press, 2012. Chapters 6 and 7.

Wasserman, Noam, and Deepak Malhotra. "Negotiating Equity Splits at UpDown". Harvard Business School Case 809-020, July 2008. (Revised November 2012.)

Wasserman, Noam, and Yael Braid. "Slicing Pie with a Razor: Ockham Technologies' Founding Agreements". Harvard Business School Case 814-017, July 2013.

Wasserman, Noam, and LP Maurice. "Savage Beast (A)". Harvard Business School Case 809-069, November 2008. (Revised November 2012).

Wasserman, Noam. "Smartix: Swinging for the Fences". Harvard Business School Case 808-116, January 2008. (Revised December 2012).

Questions for You

What are the uncertainties that might affect my commitment to this startup? My cofounders’ commitment to it?

If we haven’t experienced the most difficult parts of the founding journey yet, how can we tell if any of us will be able to persist through them, or will one of us drop out of the startup at that point? How can we proactively plan for that challenge?

What are my financial expectations? Am I being realistic with myself? Am I being honest with my team about my expectations?

What non-financial rewards am I willing to give up to gain financially, and what non-financial rewards are more important to me?

Questions for Your Team

What commitment is each of us making? How certain are we of these commitments? What contingency plans should we have in place if someone falters in their commitments?

Who should be paid what, and why? Are we being realistic? Are we being open about our expectations?

What uncertainties exist that could affect the relevance of our equity split in the future? Which uncertainties are we underestimating or ignoring? How should we deal with them if a worst-case scenario comes true?

How can we craft an agreement that acknowledges the uncertainties and moving parts?

Tools and Exercises

What are you certain about?

What are the uncertainties?

Evaluate: do you expect to change your business model? Pivot? Can everyone scale? Are there any personal uncertainties? Other intervening variables?

You may also be interested in…