The basic principle is that a person’s % share of the equity should always equal that person’s % share of the at-risk contributions.
Think of your startup like a game of Blackjack (albeit lower odds). You and your partner are going to play and split the winnings. Let’s say you decide to go in “50/50”.
In this game, like your startup, you don’t know if you’re going to win or when you’re going to win or even how much you’re going to win. The future is completely unknowable. Unfortunately, you have predetermined the split of an unknown future. Don’t feel bad, most startups make this mistake.
Now it’s time to play.
You each bet $1 on the same hand. The dealer deals two Aces. In Blackjack, you can now split these Aces into two hands and make another bet. Your partner is broke so you bet $2 more.
Again, the future is still unknowable. What is knowable is the amount of the bets each person made. You bet $3 and she bet $1. Does 50/50 sound fair? Probably not. It’s much more fair that you get 75% and she gets 25%. Your % share of the winnings should logically be based on your % share of the bets.
Your partner can sue you for 50% and probably win. But that doesn’t mean the deal was fair. The only possible way to have a fair equity split is to base it on the bets on the table.