Equity Split Formula

Equity Split

Many founders end up splitting the company 50:50 to avoid conflict and give a sense of being “fair”. Noam Wasserman, a Harvard Business School professor has spent fifteen years studying high-stakes decisions at more than 6,000 startups. In the Harvard research paper that he authored along with Thomas Hellmann, they studied equity splits adopted by over 3,700 founders from over 1,300 startups in the US and Canada, and concluded that entrepreneurs too often split equity with a “quick handshake.” They shared the experience of Robin Chase, the co-founder of Zipcar, a car- sharing company in the US. Robin wanted to avoid conflict with her co-founder and proposed a 50/50 split in the very first meeting. She was just getting to know the co-founder professionally. Soon, she realised her “quick handshake” was a mistake. While Robin left her job, her co-founder did not, and only contributed marginally. Robin was not happy.

A “fair” split of equity should be a composite of multiple factors: idea, work distribution, cash investment, time commitment, and in some cases, relevant experience.


I propose an “Equity Split Calculator” below. The idea is to come up with a “formula” to arrive at a “fair” split. You may customise the roles and equity percentages here (and add other variables to the mix, for e.g. level of experience) based on the unique business or execution model of your startup; but what is critical here is that the equity split is an outcome of a well thought out deliberation that is agreed to, upfront, by all co-founders, rather than being the result of a split second decision.

IdeaWhose idea was it in the first place?10%
Who does what?CTO/CPO30%
CSO20%
CFO10%
Team builder10%
COO10%
CEO10%
Who brings in upfront cash?Upfront cash should be treated as a credit. Founders should be allocated debentures, which can be converted to equity at the time of a formal fundraising round (at a certain discounted rate). I do not support allocating upfront equity based on cash investment.
What is the level of time commitment?Sweat equity matters! Part-time founders should be penalised.After calculating the equity from above, reduce a part-time co-founder’s equity by 50% and redistribute it to other full time founders.
Cash salary?If a founder decides not to take cash salary, he/she should be issued an equivalent value of debentures. These debentures may be converted into equity


Here is an example. Suppose there are three founders—Amar, Akbar, and Anthony.

IdeaWhose idea was it in the first place?10%
Who does what?CTO/CPO30%
CSO20%
CFO10%
Team builder10%
COO10%
CEO10%
Who brings in upfront cash?Upfront cash should be treated as a credit. Founders should be allocated debentures, which can be converted to equity at the time of a formal fundraising round (at a certain discounted rate). I do not support allocating upfront equity based on cash investment.
What is the level of time commitment?Sweat equity matters! Part-time founders should be penalised.After calculating the equity from above, reduce a part-time co-founder’s equity by 50% and redistribute it to other full time founders.
Cash salary?If a founder decides not to take cash salary, he/she should be issued an equivalent value of debentures. These debentures may be converted into equity