There is a comparison I keep coming back to when I think about startups. A new business is a little like having a child. You love it before anybody else does. You see its potential before anybody else can. You can spend hours talking about what it could become. Other people may think your baby is wonderful too. They may smile at it. Play with it. Tell you how beautiful it is.
But there is a very big difference between enjoying somebody else's child for an afternoon and being there at 3 a.m. when the child is sick, screaming and refusing to sleep. That is when you discover who the actual parent is. Startups work in a surprisingly similar way. At the beginning, everybody loves the idea. The energy is high. The future looks enormous. There is very little money, but plenty of excitement.
And because most early-stage founders cannot afford to hire everyone they need at full market salaries, one solution appears almost automatically:
equity.
I will give you part of the company.
You help me build it.
If this works, we all win.
Perfect. Except sometimes it isn't. Because there is something founders tend to forget:
Nobody is required to love your business as much as you do.
Equity Is Very Easy to Give Away When It Is Worth Nothing
This is one of the strange psychological features of startup equity. At the beginning, giving somebody 10%, 20% or even 25% can feel almost abstract. There may be no revenue. No product. No valuation that means anything outside a pitch deck. No guarantee that the company will survive twelve months. So the founder thinks:
What am I really giving away?
And the person receiving it thinks:
Twenty percent. That's huge.
Technically, both may be right. Emotionally, both may be completely wrong. Because the founder is often pricing the equity based on today's value. The recipient is often pricing it based on tomorrow's imagined value. And neither is necessarily pricing the most important variable:
What will each person actually contribute between today and that imagined tomorrow?
That is where many equity conversations become dangerous.
I Made This Mistake Myself
At one point in my startup journey, there were four of us. I split the company equally. Equal founders. Equal equity. Simple. Except it wasn't equal at all. I was the person who had put money into the business. And over time, I also realised something much more uncomfortable:
I was the person consistently doing the work. Meanwhile, the equity had already been distributed. Some people continued with their existing lives and jobs. Some remained involved loosely. And there is a particularly attractive position available in a startup when equity has been granted upfront:
wait and see.
If the company dies, you have lost relatively little. If the founder somehow makes it work, your percentage is still there. That is a wonderful risk profile. For the person holding the equity. Not necessarily for the person building the company.
The Founder Becomes the Only Caregiver
This is where the baby comparison becomes less cute. Imagine four people calling themselves parents. But only one wakes up at night. Only one pays the bills. Only one goes to the doctor. Only one changes everything in their life around the child. The others still love the child. Perhaps sincerely. They may still want photographs. They may still tell people proudly that the child is theirs.
They are simply not carrying the same responsibility. Now replace the child with a company. This happens constantly. And it does not necessarily mean the other people are bad. That is important. Sometimes they simply made a commitment they were never realistically capable of sustaining.
Nobody Cancels Your Bills Because You Have Equity
This is perhaps the most obvious truth in startups and one of the most consistently underestimated. People have bills. Rent. Mortgages. Children. Food. Insurance. Existing debt. Parents. Life. A person may genuinely believe in your company. They may be incredibly excited during month one. They may work nights during month two.
They may tell you they are completely committed during month three. But what about month six? What about month twelve? At some point, if the startup is not paying them and they cannot fund themselves indefinitely, something predictable happens. Reality arrives. And when reality hits the fan, equity does not pay the electricity bill.
The person starts taking paid work. Their attention shifts. Their availability changes. Their urgency changes. Not necessarily because they betrayed you. Because survival beats theoretical future upside. This is especially important when founders are no longer twenty-two.
When four students start a company together with almost nothing, the stakes may be relatively symmetrical. Everyone is broke. Everyone has limited obligations. Everyone can survive on questionable food and optimism for a while. If it fails, everybody goes somewhere else.
At thirty-five, forty or forty-five, the same startup structure can contain completely different realities. One founder may have savings. Another has a mortgage. Another has three children. Another has a profitable existing business. Another needs monthly income immediately. You can give all of them exactly 25%.
That does not make their ability to commit equal.
Equal Equity Does Not Create Equal Commitment
This is the mistake underneath many 50/50 or 25/25/25/25 startup structures. We assume ownership will create motivation. Sometimes it does. But equity cannot manufacture circumstances that do not exist. Twenty-five percent does not create twenty-five percent of someone's time.
Twenty-five percent does not create twenty-five percent of their financial risk tolerance. Twenty-five percent does not create twenty-five percent of their emotional attachment. And it certainly does not guarantee twenty-five percent of the work. That is why the starting question should probably not be:
How much equity should I give this person?
It should be:
What exactly am I buying with this equity?
Time? Expertise? Capital? Relationships? Technology? Sales? Full-time commitment? Reputation? Risk? Something else? And then comes the uncomfortable second question:
For how long?
Because “she will help us with marketing” is not a contribution model. “He will handle technology” is not a contribution model. “We are building this together” is definitely not a contribution model. Those are intentions. Equity is permanent enough that intentions need translation into something far more concrete.
The Question Is Not Only “How Much?”
A founder can give too much equity. Obviously. But giving too little can be just as destructive. Give somebody 2% while expecting them to behave like a co-founder and they may quite reasonably decide that your company is not their problem.
Give somebody 40% for an undefined future contribution and you may spend years wondering why you gave away almost half of your company to someone whose involvement disappeared after six months. The difficult question is therefore not:
What percentage is fair?
It is:
What structure makes the percentage fair over time?
Those are different questions.
Before Splitting Equity, Separate the Variables
I would now look at several things independently.
1. Who created the original business or IP?
Was there already a concept, product, customer base, technology, research or brand before the new person arrived? Joining something that already exists is different from creating it together from zero.
2. Who is putting in cash?
Not promised cash. Actual cash. And what happens if more money is required later? Is everyone expected to contribute proportionally? What happens if someone cannot?
3. Who is committing time?
Full time? Two days per week? Occasional advice? Evenings until funding? These are radically different commitments.
4. What is each person's opportunity cost?
Leaving a $200,000 job is not economically identical to contributing five hours per week while keeping that job. That does not automatically dictate equity. But pretending the difference does not exist is equally irrational.
5. What is each person actually responsible for delivering?
There should be a difference between:
“responsible for sales”
and:
“build and manage the sales function, personally generate the first X customer pipeline, and commit full time from date Y.”
The second can actually be evaluated.
6. What happens if somebody stops contributing?
This may be the most important question. If a founder stops working after six months, do they still own everything they were originally promised? What happens if they never go full time? What happens if they leave? What happens if you have to replace them with somebody you now have to pay?
This is why mechanisms such as vesting, milestones and clearly defined founder obligations exist. Not because everyone expects betrayal. Because circumstances change.
Equity Should Follow Reality, Not Optimism
I have seen startups with no revenue and barely a product treat 10% equity as if they were offering somebody a small fortune. Perhaps one day they were. At that moment, they were not. I have also been on the opposite extreme myself. I distributed equity generously because I was thinking:
We are together.
We believe in this.
We are all building it.
That was optimism. The ownership structure was real. There is a big difference. One of the lessons I took from those years is that equity should not be designed around how everybody feels during the honeymoon phase of a startup.
It needs to survive the phase when nobody is sleeping properly, money is short, progress is slower than expected and people begin asking themselves whether continuing still makes sense.
Good equity structures are designed for the day enthusiasm disappears.
Your Co-Founder Is Not You
This may sound obvious. It isn't. Founders project. You are prepared to work fourteen hours because this company lives in your head. You assume somebody else with 25% will naturally feel the same urgency. You have put your money into it. You assume the other person understands what that means emotionally.
You are willing to go six months without being paid. You assume they can do the same. But they may not. And sometimes the mistake is not choosing the wrong person. The mistake is creating a structure that requires them to behave like you. There is nothing inherently wrong with a co-founder saying:
“I cannot survive without income for twelve months.”
That is valuable information. The dangerous situation is pretending this constraint does not exist and giving them equity based on a commitment that reality will eventually make impossible.
Do Not Use Equity to Solve a Salary Problem
This is another trap. A founder needs someone good. The company cannot afford them. So the founder compensates for the missing salary with a large equity offer. Sometimes that is exactly how great companies are built. But equity and salary solve different problems. Salary pays for present work. Equity gives participation in future ownership.
If someone needs present income and you give them future ownership instead, you may not have solved their problem at all. You have simply delayed the moment when the incompatibility becomes visible. Before offering large ownership because cash is limited, ask:
Can this person financially sustain the arrangement I am proposing?
Not for four exciting weeks. For the period the company realistically needs. If the answer is no, increasing the equity percentage may change absolutely nothing.
The Real Equity Conversation
A serious founder equity discussion should therefore go much further than:
“How about 60/40?”
It should include questions such as:
What exactly is each person bringing? What has already been contributed? What is still only promised? Who is funding the business? Who is working full time? When does full-time commitment begin? What does each founder need financially to remain functional? What happens if funding takes twice as long as expected? What happens if one person leaves?
What happens if someone's role becomes unnecessary? What happens if one founder dramatically outperforms the others? What happens if additional people need equity later? How much ownership needs to remain available for employees or future investors? What decisions does equity control? And perhaps most importantly:
What would have to happen for today's equity split to feel absurd twelve months from now?
That question is worth answering before signing anything.
The Goal Is Not Perfect Fairness
You will never perfectly predict everybody's future contribution. A startup changes too quickly. Roles change. People change. Markets change. Someone who looks indispensable today may become irrelevant. Someone who appears secondary may become the person who saves the company.
So the objective is not to create some mathematically perfect division on day one. It is to create a structure that can survive imperfect predictions. A structure where ownership, contribution and commitment do not become completely disconnected.
A structure where one person does not eventually discover that they have become the sole caregiver to a business surrounded by people who still own pieces of it.
Before You Give Away the Company
If you are currently deciding how to split startup equity, there may not be a universally correct percentage. But there are definitely bad questions.
“What will make everyone happy?”
is one of them. A much better set is:
What does each person actually contribute? What risk are they carrying? What can they realistically sustain? What exactly do I expect from them? What happens if they cannot deliver it? And how much flexibility will the company still have afterward?
These are the questions I would rather answer before a founder gives away 10%, 25% or 50% of a company based largely on enthusiasm and trust. Because once ownership has been granted, discovering that everyone understood their commitment differently becomes considerably more expensive.
This is also one of the situations I work through in a Decision Logic Snapshot. Not to produce a magical number. There isn't one. But to examine what you are considering giving away, what you expect to receive in return, whether those expectations are realistic, where the asymmetries are, and what needs to be clarified before the structure becomes difficult to reverse.
Sometimes the question is:
“Am I giving away too much?”
Sometimes it is:
“Am I offering too little for what I expect?”
And sometimes the much more important question is:
“Am I trying to use equity to buy a level of commitment this person cannot realistically give me?”
Your startup may be your baby. Someone else may eventually love it almost as much as you do. But you should probably not give away part of the family home just to find out.