[jedberg]

Here's my best tip: Make sure they are in a similar life situation. ie. Wealth, kids, family, etc.

If one of you has three years of life savings and one of you needs money in three months, that will affect your decision making.

If one of you wants to take weekends off to go to the kid's soccer games and the other one wants to go out and drink on Friday afternoon, you had better figure that out ahead of time and make sure you're both ok with that.

[shawn]

Is it important for both people to sign a vesting schedule from day one?

This seems like a surprisingly common scenario: The initial agreement is a 50/50 split, and then a few months down the road one or both founders feel that 50/50 is no longer fair. If a vesting schedule is signed, you never have to think about this or revisit it.

The point of a one year cliff is that you can say "Ok" without worrying whether the other person is ineffective. If they are, you part ways.

This usually kills the company, of course, but squabbling over scraps of equity seems to do at least as much damage. Enough that YC wrote https://blog.ycombinator.com/splitting-equity-among-founders... about it. And it seems especially dangerous if you can't both agree to sign from day one, before doing any significant work.

But perhaps that's that's too inflexible. I don't know.

[jedberg]

My thoughts on equity boil down to these two rules:

1) Always split evenly amongst cofounders

2) Always have a vesting schedule with no cliff.

Reasoning: For number 1, there is no need to start off with a battle about "who is more important" or "who contributed more". These things don't and won't matter down the line. There are basically three ways a startup ends:

1) Total failure, in which case the equity split doesn't mean anything.

2) Great success, in which case the equity split doesn't really mean much, because does it matter that you got 10 million and your cofounder for 12 million? Or

3) A meh exit. This is the only place where the equity split might matter, because maybe you'd get $750,000 to and your cofounder would get $1M. But even then, chances are since you aren't retiring off of that exit, you'll probably do it again, and do you really want to have that lingering "she got more than me" feeling, especially if you might work together again?

As for number two, the reasons for vesting schedules are covered elsewhere (in case someone leaves for any reason) but as for the no cliff -- I don't really like cliffs in general. You did the work, you should get the equity. The main reason to have a cliff for an employee is because it's a legal hassle to have a lot of small equity holders, so you want to prevent the folks who didn't work out from holding any equity. But that doesn't apply to a cofounder. You will already need them for a bunch of other legal stuff anyway, and having one or two extra shareholders really won't make much difference. And besides, even if they leave after two months, at least if they have shares they have a vested interest in your continued success.

[timr]

Yes. Never enter a business relationship with someone without setting those terms, in writing, before you begin. Likewise, don't dilly-dally around with starting as a "side project" with the real, secret intention of starting a business. If you suddenly think a project is a business, then from this day forward, you set the terms in writing, then proceed. Nothing from before the decision point matters, even if you've kinda-sorta worked on the "side-project" in various capacities for years. Just make a decision, divide the equity, set the vest, write it down, and move forward with confidence.

You don't necessarily need to have a full "legal document" at this point (unless actual money is involved -- then get a lawyer or service and do it correctly), but you do need to have the terms of the agreement clearly documented from the start. If you can't handle this conversation, you can't handle business. There are going to be far more stressful conversations in your future, and this stuff is table stakes.

The good news is that this is all so standard now that you shouldn't spend more than 30 seconds on vesting: "standard 4-year vest, 1 year cliff, starting from today." Anything more complicated or deviating from this is a strong sign that you're Doing It Wrong. In certain situations (i.e. you didn't follow this advice and worked for a while before formalizing the agreement) you might set the vest start date to something other than "today", but again, it's a warning sign. Try as hard as you can to be boring.

[phaitour]

I don’t think a 50/50 split is necessary, but whatever split you end up with has to make sense. Just because one person has a bigger personality isn’t a strong reason. If one person is quitting their day job first, or brings in partnerships on day one, etc, then it’s worth talking out. I’ve seen lots of great founder relations not 50/50, so don’t rule it out.

But ALWAYS HAVE VESTING. Repeat after me: always have vesting. I personally think cliffs always make sense because it takes time to make sure that a relationship is meant for the ages and that the other guys are as dedicated as you, but I’ve heard sound arguments for no cliff. Either way, always have vesting. It makes separations sooooooooo much cleaner and easier if the unfortunate happens.

[Jhsto]

I guess even with equal ownership it would be beneficial to decide who has the final say on things. "A pirate ship has to have a captain." Rather have the business die because of bad choices than the inability to make choices.

[tedmiston]

Generally 1 year cliff is just for employees. Usually no cliff for founders but reverse vesting. The difference is more about taxes than anything else.