EP38 - Why Equal Equity Splits Often Fail, And How to Do It Right

Send us a text

In this conversation, Mike discusses the critical importance of having open and honest discussions about equity distribution among co-founders when starting a business. He emphasises that while many assume a 50-50 split, this often leads to complications later on. Drawing inspiration from the book 'Slicing the Pie', he outlines a structured approach to fairly allocate equity based on contributions such as cash, time, resources, and intellectual property. By tracking these contributions and applying multipliers based on scarcity, co-founders can engage in meaningful discussions about equity that foster trust and transparency, ultimately leading to healthier business relationships.

Takeaways

• Equity discussions should happen early to avoid complications later.
• Assuming a 50-50 split can lead to resentment and conflict.
• Using a structured approach helps in fair equity distribution.
• Tracking contributions is essential for transparent discussions.
• Multipliers can reflect the scarcity of contributions.
• Difficult conversations are necessary for building trust.
• A Google sheet can simplify tracking contributions.
• Equity discussions should be based on data, not emotions.
• Building a high-trust relationship involves open communication.
• Avoiding difficult conversations can harm future partnerships.

Chapters

00:00
The Importance of Equity Discussions

02:11
Mechanisms for Fair Equity Distribution

06:46
Tracking Contributions and Future Discussions

11:03
Building Trust Through Transparency

Here is the book reference: https://slicingpie.com/book/

Find out more about working with me. mike@smbmastery.com.au or https://www.linkedin.com/in/mikeadamscott/