Monthly Archives: January 2012

Someone asked on HN how we go about allocating equity with our “auction” system.  So here it is again:

We total up the cash available and our runway, say $60k for 2 founders and 12 months. Total equity is of course 100%.

So at one extreme, one founder gets $60K over the year in wages and 0% equity while the other gets 100% equity and no wage packet. At the other end, its $30K each for 50% equity each. Somewhere inbetween is a sweet spot.

The core concept is get the cash now, or potentially more later.

Start with the equal split, then begin negotiating for the value per equity point. Eventually you’ll reach a point where you both agree on equity/wage split.

The added bonus is you’ve also technically valued your startup in the process (value per equity point*100) and have an indication of how much your relative belief in the success of the startup.

Since I tend to keep my expenses down and as an example of the last one I took 55% equity for a $7k drop in monthly cash. Cofounder gets a 7K bonus over the year (he was starting a family at the time) and was happy with his 45%.

Voting rights are equal. Always. Do not mess with these in the startup phase as they give a sense of ownership and control that founders need to commit.