Co-Founder Equity Mistakes to Avoid | Startup School

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  • Опубликовано: 11 сен 2024

Комментарии • 120

  • @ycombinator
    @ycombinator  27 дней назад +17

    What's your strategy for motivating co-founders in the early days?

    • @PrimeJohan
      @PrimeJohan 27 дней назад

      Personally, I think an equal equity split works out well
      Because I feel like it really makes the co-founders to realize and be aware that they've got a stake in this. Google did it, Stripe did it and it seems to work well for them

    • @marcusthomas3921
      @marcusthomas3921 27 дней назад +3

      Slicing pie

    • @mixerabe
      @mixerabe 27 дней назад +3

      Spending as much time together as possible, even outside of work

    • @journeytothevoid2899
      @journeytothevoid2899 27 дней назад

      @@ycombinator equal equity is the only way to motivate everyone and the product actually working

    • @ingeniousindigenous
      @ingeniousindigenous 27 дней назад +3

      @ycombinator what do you think, if instead of bringing onboard as co-founders, we hire the same people but give them a part of equity pie, as a motivation?
      That way we protect our cap table.

  • @JaySarmaz
    @JaySarmaz 27 дней назад +34

    Quick summary if you don't want to listen to the whole video:
    - Be generous with co-founder equity to ensure long-term motivation and commitment.
    - Use vesting and cliffs for all founders to protect the company if someone leaves.
    - Co-founders should be essential and motivated by equity for future work, not past contributions.
    - Avoid performance-based or complex equity structures; focus on straightforward, motivating equity splits.
    - CEOs must have the authority to remove underperforming co-founders and should plan for potential breakups.

  • @chapterme
    @chapterme 26 дней назад +18

    Chapters (Powered by ChapterMe) -
    00:00 - Intro
    01:50 - Equity Overview
    02:03 - Co-founder equity
    03:11 - Vesting and Cliffs
    04:44 - Co-founders must be essential to the founding team
    05:45 - What is equity about
    06:39 - Co-founders conversations if things don't work out
    07:05 - Co-founder leaves before their 1-year cliff
    07:28 - After 1 year cliff but pre-PMF
    09:42 - Bad reason for massively unequal equity split
    10:30 - I came up with the idea
    10:59 - I started working 6 months before my co-founder
    11:26 - My co-founder needs a salary, and I don't
    12:10 - I'm older and more experienced than my co-founder
    12:41 - I hired my co-founder after pre-seed / seed round
    13:11 - I hired my co-founder post launch
    13:19 - Sum-up: Short-term thinking
    14:06 - Common bad advice
    14:20 - Performance based equity
    15:12 - Part time founders
    15:40 - Dynamic equity agreements
    17:14 - Wrap-up

    • @ROBOROBOROBOROBO
      @ROBOROBOROBOROBO День назад +1

      I feel like this video is like the movie Prometheus, so good and so bad in so many ways.
      Equity alone doesn’t motivate people, I have seen many 50-50 splits with adequate funding break because of conflicts.
      Founders agree to certain things in the beginning but very soon these are forgotten, even when conditions are written, certain things stop being ok for them. So they act aggressive or just don’t perform.
      An example is, like how the video talks about founders with too little equity getting upset overtime.
      I have seen founders with 50% equity who got upset because spotlight wasn’t on them. I have seen CTO that wanted to be the CEO, eventually that glue that keeps complimentary founders together isn’t about a skills comparision, is what they want to do in the company complimentary or not is the real question.
      I have seen founders fighting about who should pitch, when answer is clear because one of the founders steal the show while the other one couldn’t even speak when he got excited.
      His reasoning was he should learn to pitch, but should that training really be on one of those few opportunities your startup will get to talk to investors?
      Then because he couldn’t pitch resentment grows, this isn’t healthy and breaks startups.

  • @ReadySetStartUPUK
    @ReadySetStartUPUK 24 дня назад +4

    We've observed the same recurring issue with contestants on Ready Set StartUP TV show when bringing on co-founders. They worry about giving away too much equity, while the joining founders feel they're getting too little. Ultimately, not lasting a year and simply dissolve for lack of engagement.

  • @eQ-13
    @eQ-13 27 дней назад +27

    Great advice. I started an enterprise software company with my cofounder and we split 50-50. He resigned from company but still shareholder. I was left to do all the heavy lifting. The company has turned out pretty successful and I can’t get him out. He’s getting dividends and he didn’t do much. That hurts. I’m building the second company and I am wiser now.

    • @ZelenoJabko
      @ZelenoJabko 26 дней назад +1

      Pay yourself a bigger salary? Salary is the compensation for your hard work. It's clear you don't know how things work

    • @squishypillow3162
      @squishypillow3162 26 дней назад +15

      ⁠@@ZelenoJabkoreplying “you don’t know how things work” to a random youtube comment is crazy. Keep your head down and work hard boy

    • @ZelenoJabko
      @ZelenoJabko 26 дней назад

      @@squishypillow3162 He does not, how else would you write such a comment! Equity and employment are two distinct things.

    • @TheHeroIsRisingUp
      @TheHeroIsRisingUp 18 дней назад

      That hurts!

    • @yurijmikhassiak7342
      @yurijmikhassiak7342 10 дней назад +1

      ​@ZelenoJabko if another person has 50% he can block almost any decision such as CEO compensation or amount of dividends

  • @BruceChouTW
    @BruceChouTW 3 дня назад +1

    This is the best video about equity split. I love the idea of "99% of the work is still to be done" and be a long term thinker. Thanks for sharing.

  • @IncomeBoost42
    @IncomeBoost42 26 дней назад +9

    Once you find the right co-founder, you won’t hesitate to give them a fair share of equity. But finding the right cofounder is very hard. And yes you have to be very picky about it.

  • @journeytothevoid2899
    @journeytothevoid2899 27 дней назад +17

    Recently got kicked out of my startup (no funding, bootstrapping) as the CEO/COO for performance issues and personal attacks/arguments. It has been a learning experience.
    The CTO did the product building and consistently leveraged that in arguments so we were not all equally yoked. Unfortunately we live together so that exasperated the relationship (CTO and I). I started to close bank accounts and I’d to close the credit cards I personally guaranteed but now we’re in limbo. Not interested in talking to him at this point. I just want to cut ties without messing people over.

    • @matheazewithdre2640
      @matheazewithdre2640 26 дней назад +2

      So sorry to hear this... This scenario is challenging and happens often. Think smart, think AHEAD, and play your next 2-3 moves very, VERY wisely. Good luck!

    • @dant5550
      @dant5550 25 дней назад +3

      Oh I was kicked out by investors after I’ve built whole tech part. But nothing stops from just building an alternative and giving it to clients for free…😂😂😂

  • @zazaza1000
    @zazaza1000 19 дней назад +6

    50-50 seems to be a terrible way to do things, especially when it comes to quick decision-making. The Founder's Dilemmas speaks to this exact problem. How come thay differs so much from the advice being given here?

  • @BradThomas
    @BradThomas 27 дней назад +11

    Equity is for sure a part of motivation. However, the person HAS to believe in the 'why' behind the product. It's incredible how much someone will get behind and work their butts off if they strongly believe in what's being created. Before you give any equity or go the next level, and make someone a founder, make sure they have a hardcore belief in what it is your building.

  • @thespringer4257
    @thespringer4257 26 дней назад +2

    I approached someone after coding a project for a whole year, I had the intention to split but even with that he wouldn't be responsible to do anything that requires money without me!
    Remember he has a job somewhere else and I don't, but when there is a need for something he calls me and says "we need x amount would you bring x/2 ..."
    I realized I had to cut down his equity to 25%
    Definitely my efforts should be compensated,

  • @cieliczka
    @cieliczka 27 дней назад +19

    Vinod Khosla would agree. In the interview with Altman he revealed the he advised his son to keep only 15% in his startup and gave the rest to co-founders and first employees

    • @Travelsync157
      @Travelsync157 27 дней назад +8

      You gonna get diluted so badly with 15% om every funding round

    • @mariojohnson4695
      @mariojohnson4695 27 дней назад

      @@Travelsync15715% of a company with a high valuation or market cap could be huge!

    • @onlylahoree
      @onlylahoree 26 дней назад +1

      VCs don't like when founder is diluted

    • @TheSecularHumanist
      @TheSecularHumanist 10 дней назад +1

      Correct 100% of Zero is $0. Successful exit is more valuable.

  • @eachlabs
    @eachlabs 24 дня назад +2

    Summary by Each AI
    Co-Founder Equity Splits:
    - Generosity with Equity: It's crucial to be generous with equity to motivate co-founders over the long term, especially in the early stages when the company is still unproven.
    - Equal vs. Unequal Splits: Close to equal equity splits are recommended to avoid resentment and keep co-founders motivated. Unequal splits based on factors like idea ownership or early work can lead to dissatisfaction later.
    - Vesting and Cliffs: Implementing a four-year vesting period with a one-year cliff is essential to protect the company and ensure co-founders are committed for the long haul.
    Co-Founder Breakups:
    - Pre-Product Market Fit: If a co-founder leaves or is fired before the one-year cliff, they typically receive a token equity amount (2-5%). Post-cliff, but still pre-product market fit, they should retain no more than 5% equity.
    - Board Resignation and Voting Rights: Departing co-founders should resign from the board and transfer voting rights to remaining co-founders to ensure continued alignment and decision-making power.
    Common Mistakes and Bad Advice:
    - Performance-Based Equity: Avoid tying equity to specific performance metrics, as these can be hard to set and may demotivate co-founders.
    - Part-Time Founders and Complex Equity Schemes: Part-time founders should not be considered, and overly complex equity agreements should be avoided. Clear and straightforward equity structures, with vesting and cliffs, are more effective for maintaining motivation and protecting the company.

  • @mikerossvisuals
    @mikerossvisuals 27 дней назад +3

    Seibel!!! We missed you bro!

  • @notforengineers9285
    @notforengineers9285 27 дней назад +84

    YC doesn't care how you split.. for them stability is important as YC will get their % anyway. Equal split is nonsense, it should be based on contribution... don't waste your equity and if you can pull it yourself don't get co-founders just for the sake of it - do it yourself and then hire people.

    • @aliparpar1
      @aliparpar1 27 дней назад +15

      Honestly I also agree with you on this. YC has a hidden agenda here as an investor

    • @architmittalautomatealgos
      @architmittalautomatealgos 27 дней назад +1

      This truly makes a lot of sense😅

    • @bishopdigest
      @bishopdigest 27 дней назад +9

      If you are doing it right, your cofounders should be contributing just as much as you. Which is why the equal split is suggested. It’s almost like you didn’t watch the video.

    • @eric2892
      @eric2892 27 дней назад +9

      Wait. Isn’t stability among the founders critical for success? If your cofounder isn’t worth near equal split, is that person the right cofounder?

    • @williamcory4689
      @williamcory4689 27 дней назад +5

      If this is good for the investor shouldn’t it be good for the biggest equity holder which is the initial founder?

  • @CyY-vo3nb
    @CyY-vo3nb 27 дней назад +5

    How about for solo founder's first hires?

  • @Guanggge
    @Guanggge 23 дня назад +1

    what will happen if there is a bad VC or investor that is trying to take advantage on almost equal share structure? There will always be conflict, if VC with 10% share team up with any of the founders the other one will be the victim. I think the equal equity split is extremely beneficial to investors rather than founders

  • @HosseinKalbasi
    @HosseinKalbasi 26 дней назад +2

    does YC provide a co-founder agreement template we could use?

  • @triple_leverage724
    @triple_leverage724 22 дня назад +2

    What happens if let’s say you have a 60/40 split with a cofounder and you both decide to add a third cofounder, how do you split that up?

    • @vish5798
      @vish5798 6 дней назад +1

      Mutually decide on how much percentage you wish of offer to the 3rd Co-founder and proportionally reduce both of your percentages. This way the balance remains.

  • @saivaraprasad132
    @saivaraprasad132 27 дней назад +6

    4 years is too short a period for getting the job done. Is there a reason why atleast the co-founder vesting is stretched for more longer? - Let's say 10 years

    • @rajgohil8137
      @rajgohil8137 27 дней назад

      average time for a startup to reach unicorn status (if they don't die) is 6-10 years. Doesn't make sense to keep vesting to 10 years.

  • @umuti5ik
    @umuti5ik 27 дней назад +6

    I think this is good advice. But it’s funny how little of this logic applies to early employee grants!

  • @midnqp
    @midnqp 26 дней назад +2

    1:32 took notes

    • @mysterry2000
      @mysterry2000 24 дня назад

      I've been looking for this diagram for forever - can relate to it in so many places in my life, and now I found it

  • @mikeshin77
    @mikeshin77 18 дней назад +1

    Wow, great advise. I wish I watched the video earlier.

  • @r00b
    @r00b 27 дней назад +4

    How common is it for vesting to reset on funding rounds? A seed investor asked for this, we eventually negotiated that we wouldn't, but it felt like they considered it standard.

    • @notjustanarjun
      @notjustanarjun 27 дней назад +1

      It's really not

    • @RusuTraianCristian
      @RusuTraianCristian 27 дней назад +1

      That would be a steal from their side. It resets the value of your company based on their funding, which effectively undervalues your work up to the point of the funding round.

  • @mwaffi
    @mwaffi 27 дней назад +5

    You're contradicting yourself with first saying the later years of a company are worth equity and then at the end saying the first years are very important.

    • @montramedia
      @montramedia 26 дней назад +2

      2 things can be true at the same time💡

  • @ajaniwilliams6257
    @ajaniwilliams6257 27 дней назад +2

    This is excellent Michael

  • @HEART-A-L-K
    @HEART-A-L-K 26 дней назад

    I volunteered to a mentor two high school students in am entrepreneurship completion.
    We won the competition with our proposed EdTech startup idea, which came from the two high school students that mentored.
    But unlike me, a software developer, they didn't have the expertise and resources to bring the idea to life even as an MVP.
    My spouse and I are investing our personal resources to develop the MVP and bring the app/startup into the hands of real users.
    We have transitioned into a registered startup from a mere winning idea presented in a competition. The parents of my co-founders are contributing nothing towards to venture, the coordinator of the competition insists it was their idea, and they must own a greater percentage of the equity. I, the current CEO/CTO presented all co-founders an agreement that gives each one of the the students 15% equity pre-mvp in recognition of their initial involvement, plus other future benefits should we succeed.
    What's your comment, advice and recommendation to me?

    • @arbelsonnenfeld7031
      @arbelsonnenfeld7031 11 дней назад

      An idea isn’t worth 30% - it’s barely worth anything.
      Sounds like a terrible agreement. I understand that you want to reward them, and that you’re also possibly afraid to seem like you’ve “used” them to get an idea etc.
      But 30% is outrageous… I’d say 2.5% for each is much more reasonable, but I’m not sure. Regardless, that the general bullpark imo.

  • @svenst
    @svenst 27 дней назад +3

    Great! Can u share the typical splits in percent for 2 co-founders or maybe 3?

    • @YahiaVlemmings
      @YahiaVlemmings 22 дня назад

      Based on this video, 50/50 or 33/33/33

    • @YahiaVlemmings
      @YahiaVlemmings 22 дня назад

      If everyone involved is someone you must have have in order to build your company.

    • @TheSecularHumanist
      @TheSecularHumanist 10 дней назад

      @@YahiaVlemmingsthat’s not true as per the video. He said it doesn’t have to be exact split. 55-45 52-48 etc can be considered near equal split for a 2 member founding team.

  • @phpn99
    @phpn99 26 дней назад +1

    You can't talk about "founders" without defining what you mean by founder. Corporate structures and shareholder agreements distinguish between equity and directorship. It's typical of some VCs to push startups to distribute equity as broadly as possible because it's how they retain a controlling interest even as a minority shareholder. Dividing geeks is a good way to keep them in check. In contrast, solid companies have a strong directorship that allows the "founder and CEO" (or a very small core team) to conduct the company through difficult decisions by having a controlling interest. Think of a republic as opposed to an anarchy : Legislatures that have a majority party are more efficient than those who are split across the board. Just ask the French. Mark Zuckerberg could not have driven Facebook the way he did, had he only have a congruent share of the pie. Corporations, kids, are ideally benevolent dictatorships - they never work as a kibbutz. Yes, you need a cliff and vesting, and you need to reward commitment, but the best companies are those whose founders are motivated by the solution they seek to build, and not just the cash they dream to earn. Missionaries as opposed to mercenaries.

    • @lazypenguin89
      @lazypenguin89 25 дней назад +1

      Your comment truly helped me to decide how to approach this problem. Thank you for sharing your wisdom!

  • @travisuche
    @travisuche 27 дней назад +3

    Great advice man!

  • @dsulvadarius
    @dsulvadarius 15 дней назад

    Would you say "I came up with the Idea" is a good reason for a 55, 45 equity split.

  • @SMbased
    @SMbased 27 дней назад +2

    Michael rules

  • @jackieAZ
    @jackieAZ 21 день назад

    Not sure I agree with ‘one person has to be the captain’ if you simultaneously believe that the founders must only be the essential members. I’m not saying that isn’t a valid way to organize, I’m just saying it isn’t the only valid strategy, cooperatives exist with similar or better survival rates to traditional top down companies for a reason.
    Edit: also ‘part time founders are not founders’ is kinda ridiculous. Most people can’t be ‘start up people’ if your definition of that requires all or nothing level commitment. People have bills to pay and mouths to feed not to mention any other number of constraints and life things

  •  26 дней назад

    Great video that any tech founder should watch!

  • @mo_pak_tech
    @mo_pak_tech 27 дней назад +2

    Thanks Michael

  • @sorcererstone3303
    @sorcererstone3303 27 дней назад +1

    If a founding team member left say halfway during the 2nd year. Does the shares assigned to this person get automatically redistributed to the rest of the founding team, or do the shares go to the regular employee shares pool?

    • @kolakayode2600
      @kolakayode2600 27 дней назад

      It becomes unallocated and the company owns it. No, it can't be redistributed among the founding team

  • @alexander3845
    @alexander3845 22 дня назад

    If we intend to raise money with VCs, is it irrelevant how much equity i have given up before the first round of fundraising? Somewhere i've read, one shouldn't give up more than 20 % of the company. Can i distribute 80% of my company among my co-founders and first employees and still successfully raise money?

  • @codewithfongoh
    @codewithfongoh 26 дней назад

    Wow, just wow. Thank you so much for this.

  • @Businesslawtoolbox
    @Businesslawtoolbox 22 дня назад

    Thanks for sharing very good insights!

  • @user-or5nl7sf1v
    @user-or5nl7sf1v 11 дней назад

    thanks for the sage advice

  • @minkijung
    @minkijung 22 дня назад

    Great tips Thank you so much for sharing this

  • @user-mx4yu5gr1r
    @user-mx4yu5gr1r 27 дней назад +2

    Thank you 😊

  • @MrFredericandre
    @MrFredericandre 27 дней назад +2

    Interesting but some of this doesn't apply to AI-startups. We're in a new era, the risk-reward ratio has changed.

  • @piotrn2491
    @piotrn2491 25 дней назад

    Is it a good idea to make a Goodbye party for a leaving co-founder?

  • @JetSoftProHQ
    @JetSoftProHQ 24 дня назад

    The best co-founders are those who share spheres of influence. At JetSoftPro, a software development service, we've noticed that if one person is in charge of, for example, the technical side and another is in charge of marketing and sales, things go better than when everyone does everything

  • @iLLSon2024
    @iLLSon2024 27 дней назад

    Loving the Columbia sweater, link to it?

  • @mariojohnson4695
    @mariojohnson4695 27 дней назад

    Great video, one of your best!

  • @lucasaudra
    @lucasaudra 24 дня назад

    Great video!

  • @hyperadapted
    @hyperadapted 24 дня назад

    unrelated: whats the audio intro/outro track - goes super hard!!

  • @divinemother5395
    @divinemother5395 26 дней назад

    This was really helpful ❤ 😊

  • @FahmiEshaq
    @FahmiEshaq 10 часов назад

    Spot on ❤

  • @bibintb
    @bibintb 24 дня назад

    Great talk.

  • @realmuzfi
    @realmuzfi 27 дней назад +10

    This advice only serves investors, can’t knock it. Imagine building the app yourself then giving 1/2 the equity to someone that’s didn’t contribute anything yet. 😂

    • @adpadillar
      @adpadillar 26 дней назад +2

      I disagree here. You would not build the app then give someone half. If you could make the MVP yourself and present it to customers, you probably don't even need a cofounder tbh.
      If you do need a cofounder, whether technical or not, remember that you are giving them 50% of a company that you think would not work without them. An app is not a company, and a company is not an app

    • @Dashman100
      @Dashman100 21 день назад

      ​@@adpadillar If they take salary for years, then again giving equity does not make any sense

    • @bbailey4life
      @bbailey4life 14 дней назад

      Thank you 🎉❤😂😂😂

  • @BlitzFuelChess
    @BlitzFuelChess 27 дней назад

    Advice for Equity Agreements?

  • @chan90s
    @chan90s 27 дней назад +1

    No no.. Just form a new company by transferring the exact percentages + left founder's share

  • @markg5986
    @markg5986 26 дней назад

    Thank you.

  • @bobdaawid2218
    @bobdaawid2218 23 дня назад

    Thank you sir

  • @marcusthomas3921
    @marcusthomas3921 27 дней назад +2

    Slicing pie

  • @ballatall5574
    @ballatall5574 27 дней назад +1

    First one to comment ! Wish you luck in all your endeavors.

  • @MrFredericandre
    @MrFredericandre 27 дней назад +1

    Part-time is fine if someone brings value

    • @omotayokuye8381
      @omotayokuye8381 26 дней назад

      The person providing the value on a part-time basis will inadvertently provide more value while working on the startup on a Full-time basis. For investors, they need to know you are fully committed before they will commit their funds.

  • @daytonkelly1552
    @daytonkelly1552 27 дней назад +1

    If someone makes a diagram of this strategy, please tag me

  • @dant5550
    @dant5550 25 дней назад

    eh if i only knew that 2 yrs ago when we started

  • @AdamGordon1
    @AdamGordon1 25 дней назад

    Why does YC have such patience for founders to spend years learning about customers in order to get to product / market fit? In my opinion, much of this should be done pre-incorporation.

  • @JosephFrye-g8t
    @JosephFrye-g8t 2 дня назад

    Williams Michelle Clark Elizabeth Young Jose

  • @HabibaKhatun-j5l
    @HabibaKhatun-j5l День назад

    Gonzalez Timothy Gonzalez Jose Williams Matthew

  • @SgGdkkfk
    @SgGdkkfk 23 дня назад

    Davis Kevin Taylor Charles Perez Jennifer

  • @TurkahsgFitrwmnab
    @TurkahsgFitrwmnab 13 часов назад

    White Brian Davis Kevin Smith Mark

  • @_Pratik540
    @_Pratik540 27 дней назад +1

    1st comment

  • @DuctFunny-j5d
    @DuctFunny-j5d 3 дня назад

    Moore Dorothy Clark Shirley Jones Robert

  • @testing-vj2ke
    @testing-vj2ke 25 дней назад

    unsurprising concentration of midwittery in comments. power laws galore. good thing that returns come from selecting geniuses, not teaching morons

  • @louis3195
    @louis3195 27 дней назад +1

    am i the only one finding these so obvious things?

    • @minc33
      @minc33 2 дня назад

      By the look of the comment section, yes…