Hacker News Reader

Comment by spolsky | Hacker News Reader

A lot of times I hear from people who are phobic of the 50/50 split because they're confusing control and ownership. There's no reason you can't split the ownership 50/50 and still decide that one person is the CEO and therefore has final say on all decisions. If you're still freaking out about this use a (50% + one share) : (50% - one share) split so there is a built-in, pre-agreed way to resolve conflicts.

That said, burning bridges can be a great strategy. Knowing that your co-founder is in exactly the same situation as you and that things are perfectly symmetrical can force you to actually resolve conflicts, because it takes away the option of one person shoving a decision down the other's throat.

View on HN

Interesting comment; in my experience 49.9% is worth a lot less than 50.1%, in fact, I once sold out a minority stake in a company I had originally retained majority ownership. My council told me typical valuation cut for a minority, non-controlling share was like half.

This implies to me you should really shoot for 50%, and make sure you like your joint decision-making process. Of course when you get some funding in, one of you will have to agree with investors to force something through the chain.

Differences in equity often make little difference in terms of control, e.g. in an YC like 8/46/46 split all three have equal control when push comes to shove. Even in Shapiro's three way example, control is equally distributed.

Even with a Shapiro type 55/45 split, once the firm takes significant outside investment (or provides employees meaningful equity); the balance of control will shift to where the founders have to work together as equals. An advantage of the Spolsky approach is that the company operates that way from day one, and outside investment might be less likely to disrupt the decision making process.

Another way to look at your point is that once you get outside investment, "control" between the founders is irrelevant, so you should reward the founders up-front based on merit (as Shapiro's article suggests) instead of based on some soon-obsolete notion of who controls the company.

In real life, I would have no problem with your suggesting Shapiro's model for initial unequal equity split - so long as you wind up with the least shares. And that's the issue - it makes initial equity split more likely to be competitive or contentious when the stakes are likely to be very low or zero.

My point exactly, two people who don't even know each other find it easy to argue about unequal stake splitting. Actually, this is Joel's point. I merely recapitulate. :)

Excellent point re: control. But remember that control has a lot more to it than the 50-plus-one-share; there's also board composition and protective provisions, which are usually much more important.

I do like the "burn the boats" idea though. My cofounder and I (my first company; we had a 50/50 split) were very clear with each other that our most likely source of failure was not getting along, and would often remind each other of that when nerves started to fray.

People also forget that in short order there will be other people holding varying % ownership stakes, that makes 'control' much more about persuasion/consensus building.

Plus, you can always start at 50/50 and allocate more to the person bringing more financial support (or work-for-free-ness) to the venture, as that's pretty darn valuable in the earlier days.

Joel, Do you have a rebuttal regarding value of founder who's not getting salary vs founder who's getting salary? In your article you are ignoring the fact that loaning your services to a startup is a very risky investment.

Reply on news.ycombinator.com