An Informed Guide For Co-Founder Equity Splits For First Time Founders

At OpenSeed VC, we back experienced operators at the angel stage, and one of the most critical early decisions they face is how to split equity among co-founders.

We recently asked experienced founders in our network—including unicorn founders, exited founders, and successful bootstrapped entrepreneurs—how they approached equity splits,  lessons they've learned, and how they would have approached this differently if they could go back.

Their insights provide a roadmap for future entrepreneurs navigating this crucial decision.Very quickly, two distinct camps emerged: the case for equal splits and the case against equal splits.

The Case for Equal Splits

Many founders emphasized that, unless there is a strong reason not to, equity should be split equally. The logic behind this is simple: a startup’s success is primarily determined by future value creation rather than past contributions. Equal splits foster alignment, motivation, and shared commitment, ensuring that all co-founders remain equally incentivized to drive success.

However, unequal splits may be necessary in specific situations. If one founder has significantly de-risked the company—perhaps by joining earlier, achieving product-market fit (PMF), or investing capital before external funding—then a larger share may be justified. Founders who took this approach noted that clear expectations from the outset were key to maintaining fairness.

Equal splits work well when:

• Co-founders have similar levels of commitment, expertise, and responsibility.
• No single individual has outsized leverage over the startup’s early success.
• A culture of shared accountability is a priority for long-term success.

The Case Against Equal Splits

Not all founders believe in equal splits. Some argue that equal ownership can create decision-making deadlocks, making it harder to resolve disputes efficiently. Several key reasons founders opted for unequal splits include:

1. Time Commitment Disparity

If one founder is working significantly more hours than another, their equity share should reflect that. One founder shared that asking upfront how many hours each person is willing to commit helps avoid future conflicts.

2. Competing Interests

A startup requires full focus, and a co-founder juggling multiple projects or businesses may not be the best equity partner. If a founder is not fully committed, a lower share or alternative compensation (such as advisory shares) might be a better approach.

3. Leadership and Decision-Making

Some founders believe the CEO or primary vision carrier should hold a majority stake to ensure strong leadership and direction. In this case, equity should reflect not just past contributions but also ongoing responsibility.

4. Life Commitments

Major life events (e.g., relocations, life events) can affect a founder’s ability to contribute. One founder advised that equity should be adjusted downward if a co-founder needs extended time off, as the remaining founders will carry a heavier workload.

5. Financial Contributions

If one founder puts in significant capital before raising outside investment, a larger share may be warranted. However, some founders structure this as a shareholder loan or convertible note rather than direct equity to maintain fairness.

‍Avoiding "Dead Equity" – The Silent Business Killer

One of the biggest mistakes first-time founders make is allowing "dead equity" to accumulate. Dead equity occurs when someone owns a significant portion of the business (often >10%) but is no longer involved in the daily operations.

How to Avoid Dead Equity:

Implement Founder Vesting: Never award shares outright. Use a four-year vesting schedule with a one-year cliffto ensure that only active contributors receive equity over time.

Buyback Clauses for Departing Founders: If a founder leaves early, their shares should either return to the company or be redistributed among active founders.

Performance-Based Equity Adjustments: Consider structuring equity refreshers for continued contributions and reducing the shares of those who become passive.

Set Expectations Early: Founders should discuss long-term commitment upfront and document everything in a founder agreement.

Factors to Consider When Splitting Equity

Beyond the initial percentage breakdown, founders stressed several critical considerations that can shape long-term success:

Founder Agreement with Vesting: Before raising venture capital, founders should formalize their agreement, including a standard vesting schedule (typically four years with a one-year cliff). This functions like a "prenup" for the startup, ensuring everyone is committed for the long haul and preventing future disputes. Never award shares without the 1-year cliff.

Handling Founder Exits: Founders should plan ahead for how an early departure affects the cap table. A clear buyback structure can prevent a situation where a former founder retains a disproportionate stake without contributing to the company’s growth.

Understanding Cap Tables and Dilution: A critical insight from founders was to learn about cap tables early and understand what dilution looks like in practice. Knowing industry averages helps avoid unnecessary disputes over minor percentage differences in equity.

Opportunity Cost vs. Future Value: Initial earnings or personal circumstances shouldn’t overly dictate equity splits. While opportunity costs vary (e.g., one founder leaving a £100K salary while another leaves a £50K job), what truly matters is the long-term value each person creates for the company.

Planning for Founder Commitment and Life Changes: One founder noted that five years in, some co-founders had shifted their priorities while others had taken on more responsibility. It’s important to acknowledge that roles evolve, and equity structures may need adjustments over time.

Tips for Structuring an Effective Equity Split

Try before you buy: Even if you’ve been friends since pre-school, work together in a trial mode for at least six months to determine if this mission is right for both of you. Three months is too short—it’s easy to overlook early warning signs.

Discuss full-time commitment early: If one founder isn’t planning to go full-time, equity allocation should reflect that. Instead, compensate them as a consultant rather than a co-founder.

Be kind but track contributions objectively: People often perceive their work as more valuable than it may be. Set clear, agreed-upon metrics to measure contribution levels.

Consider future flexibility: Setting aside an equity incentive pool can help adjust for increased contributions over time.

Be clear on expectations: If a founder isn’t fully committed or has multiple competing interests, this should be factored into their equity split from the start.

Lessons from Experience

Looking back, founders highlighted key lessons they wish they had considered earlier:

Roles evolve over time: A founder’s responsibilities can shift dramatically in 3–5 years. Setting aside an equity incentive pool for future contributions can help maintain fairness.

Being a founder ≠ Making every decision: Founders must differentiate between ownership and operational control. While their input is valuable, decision-making authority should align with company structure, often centered on the CEO.

Understanding dilution matters: Even legally savvy founders were surprised by how cap tables evolved with funding rounds. Founders should educate themselves early on how dilution impacts their long-term stake.

Final Thoughts

There’s no one-size-fits-all answer to equity splits. What matters most is clarity, alignment, and thoughtful planning. Whether founders choose equal or unequal splits, having candid discussions, structuring agreements with vesting, and preparing for future dilution are critical steps to ensuring long-term success.

For founders navigating these decisions, OpenSeed VC encourages taking the time to get this right early—because while equity is just numbers on a cap table, it ultimately defines incentives, control, and the foundation of the company’s future.

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Till next time!

Maria Rotilu