Why do startups do stock splits?

Companies often employ stock splits in an effort to make investment in the company appear more affordable for smaller investors. Because price per share has decreased, smaller investors may buy more stock, theoretically increasing market demand and driving up the price per share.

How do you legally divide equity?

The basic formula is simple: if your company needs to raise $100,000, and investors believe the company is worth $2 million, you will have to give the investors 5\% of the company. The remainder of the investor category of equity can be reserved for future investors.

What is a fair equity split for co-founders?

Unfortunately, division of equity is not always this simple. Concrete, measurable contributions in capital and sweat equity might matter more to the success of your startup than a single idea. Therefore, a fair equity split will usually follow a careful analysis of the relative amount of early development work contributed by each co-founder.

How do you divide your startup’s equity among co-founders?

As Michael Seibel of the startup accelerator Y Combinator puts it; “These are the people you are going to war with”. Deciding on how to divide your startup’s equity among co-founders is all about finding the right balance so that everyone remains motivated throughout the journey.

Should I split my startup’s equity?

Disputes over equity can kill an early stage startup fast. The founder equity split should be a considered, not hasty, decision. Studies show VCs prefer uneven splits, but startups still often split 50/50. Equity splits may be renegotiated down the line, especially at large stage funding events.

Should founders split up the work?

However, it’s rare that founders split the work that makes a company work equally—and VCs know this: the same Harvard study found that companies with equal equity splits had more trouble getting funding than their counterparts. Having no “deciding” vote can also cause a logjam between the founders in some cases.