Mike Pestana is a partner at Paul Hastings, where he advises startups and venture investors on the decisions that shape companies from day one.

Great teams build great companies. But keeping your team motivated through the long, grinding slog of building a startup requires getting the equity split right. Getting it wrong can lead to slower growth or an untimely death of a promising new business.  

The Trouble with Even Splits 

When you're starting a new company and the future is uncertain, a 50/50 split may feel fair. And it's also common, about 42% of two-founder teams have an even equity split.

But this simple solution can create two big problems: 

• Deadlock. No one has voting control; a company can die in voting limbo. 

• Misaligned Incentives. Most founding teams aren't actually equal. Team members vary in experience, domain expertise, and time commitment. Equal equity can seed resentment when skillsets are not aligned with economic incentives. 

Who’s in Charge? 

In a two-founder company, one founder with slightly more ownership creates a clear decision-maker without dramatically changing the economics. That clarity is valuable to all stakeholders, including investors. 

Three-plus founders avoid the deadlock problem but are still left with the control question. The team should collectively discuss realistic contributions among founders. It’s unlikely that all skillsets are equal across education, experience, seniority, and long-term role. Your equity splits should reflect this nuance, which in turn will determine voting control.  

Vesting is the Safety Net 

Almost every founding team should vest their equity, typically over four years with a one-year, 25% cliff. During the initial cliff period, equity can be adjusted with the mutual consent of the company and the founder. None of the shares have vested yet and scale is likely years away, allowing for more flexibility.

After the cliff period, and especially once the company has scaled, adjusting founder equity becomes significantly more complicated and emotionally charged.

Discuss Early and Honestly

Before you form the company, have an honest conversation with all the founders. Not just about who's contributing now, but about how each founder's role will evolve as the company grows.

The justification for your equity split should be clear and specific. If something feels off initially, it will likely be a bigger problem down the road.   

Things will change as the company scales. But a well-reasoned equity structure at the start will accelerate growth at every stage rather than create friction that slows it down. 

Founder Takeaways 

• Don’t default to 50/50 just because it feels fair. It usually isn’t. 

• In two-founder teams, consider giving one founder voting control to avoid deadlock. 

• Equity splits should reflect likely long-term contributions. 

• Use vesting and consider the initial split again during the cliff period. The team may feel different after a few months of working together. 

• Have the equity split conversation before you form the company. Talking about equity is uncomfortable, but that’s the point.

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