no founder should have a 50% stake

Starting a company is a lot like a marriage. There will be ups and downs, good times and bad. Through it all, if you can make it work everyone comes out ahead.

But as you grow, as you go through the peaks and the valleys, decisions have to be made that may upset people. If those people are co-founders, it’s important to have very clear decision-making rules in place.

One of the clearest rules is that no equity or ownership split should have a 50% next to it. Even if the split is 50/30/20 there’s still a reasonable chance that a deadlock happens and the company ends up standing still—which is the worst thing a company can do.

There are a lot of factors that should go into deciding a fair equity split. Risk tolerance. Direct contributions of time, money, or other valuable asset. It should all weigh in.

But so should responsibility and ownership. When it’s not clear who (or which group) is ultimately responsible for the company’s direction, there’s a risk of standing still.

As companies grow beyond 2-3 shareholders, the numbers change but the principle doesn’t. Someone has to be the clear shot caller.

Deadlocks are deadly.

Peter

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