Determining how founders should split the equity in a newly created online startup business can be intimidating. What factors should you consider? What roles do each of the founders play, and how can you go about assigning values to those roles? Who came up with the original ideas, and who executed them? Who is ultimately the most responsible for the company’s success, and should their equity reflect that? The good news is that there’s a simple way to solve this problem: use a startup equity calculator.
Foundrs.com has created a great one, called the Co-Founder Equity Calculator. Simply answer a short series of questions by selecting which of up to four original founders best fills each role, and the startup equity calculator will calculate an appropriate equity distribution for your company.
Foundrs.com’s startup equity calculator is “based on almost 3 years of one-on-one discussions with entrepreneurs through the co-founders meetup and the startup conference,” one of the larger Silicon Valley entrepreneur events. Their approach is simple and commonsensical, and can serve as a starting point for your own startups discussions about equity during incorporation.
Deciding how to divide up your startup’s equity doesn’t have to be stressful. Don’t try to reinvent the wheel: rely on the experience of those who have gone before and the advice of qualified legal counsel to plan your company’s equity calmly and productively. Tools like Foundrs.com’s startup equity calculator are a great way to start. Having a baseline idea of what percentage of your company’s equity each founder owns is a vital first step in the incorporation process. Before you can actually incorporate, issue restricted stock, and determine voting rights, you’ve got to know how much of the pie each founder will end up owning.
As with any online tool, use this startup equity calculator at your own risk–it shouldn’t be relied upon for legal or corporate decisions, and it shouldn’t take the place of real legal advice.