Why not split equity equally?

A decade of research done by Harvard Professor Noam Wasserman shows that equal splitting is associated with lower pre-money company valuations and less stable startup performance.

Consequences

Well, founders who avoid tough equity negotiations and quickly jump to equal splitting may fail to understand strengths of their founding team members and their expected contributions to the project. Equal splitting may also be a sign for investors that the founding team lacks entrepreneurial negotiation skills.

Why use FES tool?

We understand that equity negotiations are not easy at all. That’s why we created FES tool to help founders understand what each of them brings to the table, get a recommendation on equity division and use it as a starting point for meaningful and trusting negotiations. It’s easy to use and free!

Well, to do this in a fair way, three things should normally be taken into account:

  • prior experience of the founders
  • their contributions to the project (tangible like cash and intangible like ideas)
  • future expectations of their roles and responsibilities in the project
  • This is the core basis of how FES works.

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    It's easy as 1-2-3:

  • Step 1: Founders are asked simple, short and objective questions.
  • Step 2: Based on their answers our built-in algorithm estimates their relative contribution to the venture.
  • Step 3: Based on the estimations our system suggests the most fair way to split equity among the founders.
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    FEST calculates a static “snapshot” of what current equity shares of each founder should be.

    Founders can use FES to understand what are their current fair shares of equity in the startup. It’s important to remember however that all startups live in a state of a constant flux. You may want to use FES regularly to check how your fair shares of equity are changing based on the changing situation in your startup.

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    We are now working on an advanced version of FES tool which will allow capturing a dynamic equity split among founders. Using it, teams will be able to regularly re-calculate their equity shares.

    This tool will be most useful for teams who view equity as remuneration to the founders for the work they do, since at an early stage of startup lifecycle founders are typically not paid salaries. Similar to remuneration, equity amounts should be aligned to founders’ performance, their contribution to the project, even actual time spent. It won’t be fair, if in spite all the changes in the course of a startup life, founders’ shares will just remain intact.

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    Step 1

    Founders are asked short, simple and objective questions. Takes only around 10-15 minutes to answer.

    Step 2

    Based on the answers our built-in algorithm estimates their relative contribution to the venture.

    Step 3

    Based on the estimations our system suggests the most fair way to split equity among the founders.

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