Decision making · Equity

How 50/50 co-founders make decisions?

Toddy Mladenov CTO and Co-Founder at Agitare Technologies Inc.

February 3rd, 2014

Hello everybody,

Any direction how to structure your voting in a 2-founder startup with 50/50 ownership? How can dead-lock situations, where none of the founders wants to give up be avoided.

Any suggestions are appreciated.

Thanks!
Toddy

Andrei Pop CEO at HumanAPI

February 3rd, 2014

Don't split equity 50/50... it's a terrible idea. If you decide you must, one of you has to be CEO and the other must be ok with this.

Kate Hiscox

February 3rd, 2014

Hi Toddy, You could form a board and add a third person. That would be my suggestion. Sent from my iPhone

Dimitry Rotstein Founder at Miranor

February 3rd, 2014

A common solution, as far as I know, is to have an external tie-breaker - someone whom both founders trust, and who will only have a tie-breaking vote. Or he could have the usual 1-3% of the shares advisers get, in which case the tie-breaking ability is granted automatically.
Giving one of the two founders (the CEO) a tie-breaking vote probably won't work, because with just two votes the CEO will effectively have 100% voting power (since nothing can overpower his vote), which would leave the other founder with no formal influence whatsoever, thus breaking up the team. Unless of course, the second founder has complete trust in CEO's decisions, but then you shouldn't have tie problems in the first place.

Scott Foster Business and Entrepreneurial Attorney at Bulkley Richardson

February 3rd, 2014

Don't do 50/50.  The analogy that I always give is this - if you are in a car driving toward a cliff, the last thing you want is an argument over whether we should turn left or right.  The direction doesn't matter, turning matters.  After we turn away from the cliff, we can talk about whether left or right was the best decision.  But we'll be able to have that conversation because we won't have died in a fiery car crash.

Same issue in a business.  Making a bad decision is rarely fatal. Being unable to move in any direction is routinely fatal.  

If people really want to structure something 50/50, I have them flip a coin for control.  They can still have equal ownership, but someone has got to be able to grab ahold of the wheel.

Anonymous

February 3rd, 2014

There is a great post on this subject by Mark Suster: http://www.bothsidesofthetable.com/2011/05/09/the-co-founder-mythology/

Essentially, someone needs to be in control, and make sure you have a contingency plan in case someone takes a different opportunity along the way (e.g. vesting agreement).

Aji Abraham

February 17th, 2014

If you are far along to have real board, you wouldn't be in this position. So I am assuming you are in the very early stages and building stuff instead of doing the paaperwork and all. Moving away from 50-50 is sometimes difficult as both founders do not want to concede. In those cases, you can always get a third party as the tie breaker. They dont even need to be board member. They can be somebody both of you trust professionally.

Michael Brill Technology startup exec focused on AI-driven products

February 3rd, 2014

Obviously avoid putting yourself in that situation in the first place (certainly agree that 50/50 equity split is a bad idea)... but if you do find yourself there, one thing I use on a personal level is that you ask each other how important it is on a scale of 1-10. The vast majority of things are not going to be 10 for each of you. Much, much better than having a third party tie-breaker come in... that just breeds resentment. Even if you don't use 1-10 scale in business, try it on a personal level - it really does work well.

Toddy Mladenov CTO and Co-Founder at Agitare Technologies Inc.

February 3rd, 2014

Thank you to all! Appreciate the input! I think my preferred approach would be one of the two is CEO and there is a third person on the board of Directors as neutral as possible.

Toddy

John Sechrest

February 3rd, 2014

the sad but simple answer is that you pick one person to be the point person and give them more shares than the other.

Sean Hurley Strategic Marketing Leader with strong financial results for growing organizations

February 3rd, 2014

Someone needs majority equity to avoid gridlock.