The Very First Mistake Most Startup Founders Make
Startup Codex

Noam Wasserman has studied the equity split of more than a thousand startups, and shares some of his thoughts on the data.

He discusses the importance of the timing of this split, the reluctance of investors to support an equality of distribution and the long-term impact it can have on the startup, beyond the founders.

What do investors make of teams that split the equity equally? Our data suggest that they are less than thrilled. Even after statistically controlling for a lot of factors, our data still suggest the same basic message: companies that have equal splits have more difficulty raising outside finance, especially venture capital. Venture capitalists could obviously tell the founders to come up with a different equity split, but that causes a lot of strife and heightens cofounder turmoil and turnover. Given that venture capitalists invest in less than one out of every hundred companies that come across their desk, they are looking for reasons to say no. An equal split can send worrisome signals about the team’s ability to negotiate with others and to deal with difficult issues themselves.

Collections featuring this content