Two or three people decide to start something together. The equity conversation happens early, briefly, and usually resolves to an equal split because it's fair, quick and avoids an awkward discussion.
It's also the source of a substantial share of the disputes that destroy early companies, and the reasons are predictable.
Why equal splits are the default
Several reasons, all understandable.
It signals equality of commitment at a moment when everyone is enthusiastic and nobody wants to introduce hierarchy.
It avoids a difficult conversation about relative contribution, which requires people who like each other to say uncomfortable things about each other's value.
And at the point of the discussion, nobody has done anything yet, so contributions genuinely are roughly equal — everyone has an idea and an intention.
Why it goes wrong
The problem is that the split is fixed at a moment when almost all of the work is in the future.
Over the following two years, contributions diverge. Someone works full time while another keeps a job. Someone brings in the first customers. Someone's role turns out to be less central than expected. Someone reduces involvement for entirely legitimate personal reasons.
By year two, an equal split can feel substantially unfair to whoever is carrying more, and it's very difficult to renegotiate, because any proposal to change it is an accusation.
Research on founding teams has consistently found that quickly-agreed equal splits are associated with worse outcomes than splits arrived at through explicit negotiation, and the proposed mechanism is exactly this: a split agreed without discussion is a split that was never stress-tested.
Vesting, which solves most of it
The mechanism that addresses the largest risk, and it should be non-negotiable.
Founder shares should vest over time — typically four years, with a one-year cliff. If a founder leaves before the cliff, they keep nothing. After that, they keep the vested proportion.
The reason this matters: without vesting, a founder who leaves after six months keeps their entire stake permanently. The remaining founders spend the next decade building a company in which a substantial share belongs to somebody who left at the start.
This is a genuinely common and genuinely fatal situation. It makes the company difficult to fund, because investors will see a large inactive holding and want it resolved before committing.
Vesting protects everybody, including the founder proposing it, and any founder who resists it is telling you something worth hearing.
What should actually inform the split
If you're going to have the conversation properly, the factors worth weighing.
Idea origination. Real but usually overweighted. Ideas are common; execution is rare.
Time commitment. Full time versus part time is the largest single differentiator, particularly early. Someone who quits a job carries risk that someone keeping one doesn't.
Capital contributed. Money put in should generally be recognised, ideally as a loan or a separate investment rather than folded into founder equity, because mixing them confuses two different things.
Prior work. Existing intellectual property, a built prototype, an existing customer base. Real and quantifiable.
Opportunity cost and risk. Someone leaving a senior position is contributing more risk than someone leaving a job they disliked.
Expected future role. Who will be doing what over the coming years, honestly assessed.
Several structured frameworks exist for weighing these, and their main value isn't the number they produce. It's that they force the conversation to happen with something concrete to argue about.
Having the conversation
Practical suggestions, because the difficulty is social rather than analytical.
Do it early, before there's much to lose, when the stakes feel low. It becomes exponentially harder later.
Do it in a scheduled session rather than in passing. Treating it as a proper discussion signals that disagreement is expected rather than hostile.
Have each person write down their proposed split independently before discussing. The differences between the sheets are the actual conversation, and having them in writing prevents the anchoring that happens when one person speaks first.
And write down the reasoning, not just the numbers. When someone questions the arrangement in two years, a record of why it was agreed is enormously helpful.
The signal value
The last point is the one I'd emphasise most.
Founding a company involves years of difficult conversations under pressure — about money, about performance, about strategy, about someone not pulling their weight.
The equity conversation is the first of those, at the lowest possible stakes, with the most goodwill available. If a founding team cannot have it constructively, that's important information about how the harder ones will go.
Avoiding it doesn't mean you've avoided the problem. It means you've deferred it to a moment when it will be considerably worse.
Documenting it properly
Whatever is agreed needs to exist in a signed document, and this is where a startling number of teams fall down.
Verbal agreements between friends are not enforceable in any useful way and memories of what was agreed diverge remarkably fast once money is involved. There are documented cases of substantial companies facing claims years later from people who believed they were founders.
What is needed is a founders agreement covering the split, vesting, what happens on departure, intellectual property assignment, decision-making, and how a deadlock gets resolved. It is a modest legal cost early and it is the single best insurance available.
The intellectual property point deserves emphasis. Work done before incorporation belongs to whoever did it unless assigned. A company that does not own its own core technology is unfundable and unsellable, and the discovery usually happens during due diligence at the worst possible moment.