Equity distribution · Slicing Pie

Whats the best way to structure the shares of the company?

David Safai Founder of Microcell Communications 1997-2013. Currently MF Real Estate Developer in Los Angeles

September 18th, 2020

I am looking to create a startup and the goal is for me to put up 10% of the equity, recruit 2 more co-founders that wouldn't need to put up equity and look to raise the other 90%. We need about 10 mil to get started. How do we decide how to slice the pie for the co-founders, investors and future employees? I cant find any software on this or books to read.

Paul Garcia marketing exec & business advisor

September 25th, 2020

Funny you chose the words "slice the pie" because that's the name of the book you're looking for "Slicing Pie."

Putting up 10% of the cash does not mean you own 10% of the company. Your equity can be tied to cash, but it does not have to be.

Co-founders are not your first employees. They are people who must 1) share an identical vision for the company, 2) be decision-makers, and 3) share in the ownership. That doesn't mean you all have to hold equal ownership or have the same level of authority, but those three characteristics are what make the difference between someone being one of the first employees and being a co-founder.

There is no obligation to share ownership with anyone (future employee).

I'd also advise that if you do take on a co-founder, you keep it to one, not two. The more co-founders you have, the more complicated decisions become. Each additional co-founder is exponentially more effort to reach decisions, as in adding one co-founder doubles decision making complexity and adding two co-founders quadruples decision making complexity.

Don't make the mistake of mis-labeling your first employees as co-founders.

If you need $10million to get started and you have $1million, you may want to seriously take some time and figure out what you would do if you never raised a dime. Your potential investors are going to want to know you've figured out what to do differently if you can't raise money. Investors don't fund experiments.