Startup Equity Calculator: How To Split Fairly Among Founders

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A Startup equity calculator can help the founders of any startup to determine how to split the equity fairly among the different founders involved. You can input details regarding your company and each founder when it comes to calculating the best way to split equity. Here we will discuss how to split equity fairly among founders in a startup.

Types of contributions

When it comes to a
https://www.codeventures.com/equity-calculator, having a clear idea regarding the different types of contributions is something that needs to be considered. Additionally, the founders' contributions vary in terms of both amount and form. Comparing apples and oranges is not the same thing. Tallying the contributions of different founders is like comparing apples, oranges, pineapples, coconuts, and bananas, and converting them all into fair shares of equity.

When you're dividing your equity, you should consider the following types of contributions:

Knowledge

Knowledge is perhaps one of the most important resources that entrepreneurs can contribute. Different kinds ...
... of knowledge take different forms.

Industry specific knowledge

One or more founders need to have intimate knowledge regarding how the products or the service of your startup works. Without this knowledge, your startup is never going to take flight. Irrespective of how efficient the rest of your operation is, without proper industry specific knowledge, your startup will have nothing to sell.

More often than not, the industry expert is also the one who comes up with the original idea of the startup, which merits consideration in the equity shares as well.

Business specific knowledge

Startups having a business oriented founder along with a founder who has industry specific knowledge, is far better than those with just one founder or several founders possessing the same type of knowledge. When it comes to a Startup equity calculator, having a founder with expertise in running the business, is just as valuable as a founder with intimate knowledge about the industry.

Founders who seek to bring previous relationships with key industry contacts, potential journalists and investors, should be compensated when it comes to contributing in the equity split.

Commitment

Founders that tend to risk more to commit fully to a startup, need to benefit from that risk. The more skin one has in the game, the more equity they should earn.

Time commitment

Hours are the most measurable way to gauge dedication. It should be noted that the one investing the most number of hours for the growth and development of a startup, should earn the most equity. However, it is essential to place a limit on the point past which the number of hours worked won't be affecting your equity split as per the Startup equity calculator.

Full-time or part-time job commitment

Although job commitment is closely related to time commitment, what one really needs to consider is the hours spent working for the growth and development of the business. A founder who quits a steady, lucrative full-time job to work on the business, for example, has a far larger opportunity cost than one who divides their time between the firm and part-time employment.

Geographical commitment

You need to consider if any of your founders relocated in order to be closer to your office, or if they are taking on the lion's share of the physical travel that's required to attend in-person meetings with potential board directors, officers, or board members. In addition to providing financial reimbursement for business travel, the startup equity calculator requires that your equity split account for the stress and extra load of relocation or travel.

Equipment

Lastly, founders that provide necessary materials, equipment, and resources need to be compensated for their valuable contribution. It is up to you when it comes to considering which contributions should be reimbursed financially from company funds and which should be reflected in your equity split when you're calculating it all using a Startup equity calculator or a https://www.blog.codeventures.com/how-to-use-a-startup-equity-calculator-by-founders/
.

Physical equipment

In case any of your founding partners provide necessary equipment for your team, you need to consider that in your equity calculations. Individual tools such as printers, one-time softwares, and so on, can be monetarily paid out, but if a founder seeks to contribute something major such as staff electronics, company vehicles, and much more, that should be an important factor in your equity split.

Online resources and subscriptions

The costs of necessary online tools and platforms can add up pretty quickly. Things like Adobe Creative Cloud, tax filing software, project management tools, accounting software, website hosting and domain purchases are not only expensive, but also require decent efforts to be kept in an organised manner.

Whichever founder takes on the work of purchasing, subscribing, renewing and maintaining your company's online subscriptions, should be compensated for that work, more so if they're fronting the cash for every purchase.

Office space

It's quite probable that you won't have an office right away, and in some remote cases, you might not need an office at all. However, a large number of startups begin their initial days in an informal working space, such as a spare room in someone's room, or an extra office space at a founder's place of business. This contribution of essential workspace in the early days, whether it's at home or in the office, needs to be considered as an important factor while splitting equity using a Co-founder Equity Calculator.

Founders vs. Investors

It is evident that any original capital contributions made by founders are not always taken into consideration in the figures above. This is owing to the fact that monetary contributions need to be treated as investments, and not as leverages for determining founder equity.

Founders’ equity is typically measured in common stock, which is the stock that affords the voting rights of owners in the company. Investors are usually paid in preferred stock, and as a result, they receive dividends prior to common stockholders, but do not receive voting rights in the startup.

Conclusion

When it comes to splitting equity in a fair manner among the different founders, one needs to consider valuable contributions such as the skills, time commitment, and financial investment of every founder. Moreover, each founder might have a different appetite for risk, which can also affect their willingness in taking key decisions for the developing company, and hence, this is also something that should be considered while splitting Equity fairly among the founders.

Lastly, the role of each founder, the market rate for their roles, their contribution in the workspace, and their intellectual property is all that you need to keep in mind while calculating equity shares using a Startup equity calculator or a Co-founder Equity Calculator.