Most startups don’t know how to divide equity among founders, co-founders, investors, advisors, and directors. This will result in various problems and require guidance from experts that can help avoid complications to a large extent. It is necessary to consider certain important things in determining how to allocate equity in a startup. Another thing is that they will help run a business successfully for a longer time.
Here are some factors to keep in mind when dividing equity among startup founders.
Before splitting the shares of founders, a start-up should consider the contributions they bring to a table. A founder will always think about developing a start-up in several ways. He /she will bring knowledge and competence to make the project a successful one. There are many tools available for calculating the contribution of a founder with high accuracy. The Founders pie calculator is one among them that can help divide equity among founders with 5 basic elements.
The next thing is to know whether a founder is committing equally or not. It is usual that some founders work full-time while some others work part-time. It is necessary to evaluate the success of a founder with special attention. Founders who work full time take many risks in the development and also play an active role in decision making and demonstrates high commitment. Moreover, it is advisable to recognize the input and impacts created by them before dividing the equity.
A founder should implement innovative ideas for enhancing the function of a company to a large extent. The founders will bring new technologies and provide the original capital of a company. Moreover, it is imperative to consider the skills and how long they stay at a firm including sacrifice. In some cases, start-up founders will also build tools for growing online business significantly. Each company is different and they have focused more on protecting the copyright laws and publishing works. Apart from that, start-ups should know the opportunity costs while splitting the equity among founders.
While dividing equities among founders, a start-up should evaluate the achievements and profits made by them in detail. Furthermore, they are responsible for building up the reputation of a company in the markets that bring more values. Besides that, they will motivate the employees to increase their productivity levels.
Splitting equity is not an easy one and start-ups should analyse the performance of the founders including things mentioned above.