So maybe you’ve heard that when you’re starting a business with friends or anyone else you should try to keep personal feelings out of it. Especially when it comes to the division of equity. But that can often be easier said than done. It’s all well and good to know your emotions shouldn’t come into this equation, but how do you actually do that?
Here are some tips to avoid personal feelings when splitting equity. We hope this helps you to figure out what the best way is to split equity for your company and to actually execute that plan:
Make sure you are able to talk openly with your partner…and then talk
Many people enter into partnerships with people they know as friends or in some other respect. You may think you know who you’re going into business with pretty well, but a business relationship is different than a personal relationship. Make sure whoever you’re entering into business with is someone you can work well with. You should both have different skill sets to complement each other, but ensure your skills and ways of thinking aren’t so different that you’re bound to constantly clash. Their values and vision for the future should align with yours at the core.
Make a list of both of your roles and contributions
Equal doesn’t mean fair. Try to list everything both you and your partner are responsible for and contribute to your company and objectively evaluate what those are worth. If you need help, try thinking about some of these questions. Our Startup Equity Calculator, Spliquity, can help you with this. It is an automated, unbiased tech tool to calculate equity splits between co-founders. Based on the experiences of thousands of startups, it weighs all of the various factors that you should consider during your equity split discussion. It then provides a transparent breakdown of your results, allowing co-founders to compare results and start an honest dialogue. Try it here.
Don’t assume their feelings are coming from a negative or selfish place
If unpleasant emotions come up when you are discussing this, try to get down to their source. Doing this may sound hard, but it will really help your relationship with your business partner remain stable in the future, along with your company. Don’t assume you know where their feelings are coming from. If they’re refusing to budge in the compromise, it might not be the case that they are just selfish and want more for themselves. There could be a lot behind these decisions that they haven’t voiced to you. Try your best to have an open conversation with them. Make sure you address things like where you both hope to see the company and yourselves within it in the future. They’ll be more willing to work on a compromise with you if they feel like they’re being heard and understood and you’ll both better understand each others’ goals for the future which will help orient your company in one direction.
Evaluate what matters to you
Don’t just try to understand your partners’ emotions, but get to the bottom of yours as well. It’s easy to just focus on the other person and assume your instinct is correct, but don’t forget to take a look at yourself. You may have strong feelings about this issue and that’s understandable – if only you and your partner have been seriously involved in the company thus far it may feel like a very personal issue. If you’re feeling a lot of emotions, don’t ignore them. Acknowledge how you feel and try to understand why. If you attempt to just pretend you don’t have strong emotions, you’ll end up clouding your judgment without realizing.
Think about what is of core importance to you. “Now, we are seeing businesses starting that are not just mind-based. They come from a deeper understanding of life that includes mind, feelings, emotions, but is not ruled by them.” Many companies are entering a new phase where emotions are accepted but in a focused and controlled manner. If you’d like to delve into this topic further and align your business with your values better, this workshop can help.
Research how similar companies have successfully divided in the past
There’s no denying what has worked and what hasn’t in the past. It can be helpful to look at what other successful startups like yours did when they were just getting going. Take a look at how company founders from successes like Google and Microsoft did it. These examples show there’s no one right way to split it – it’s about what makes the most sense for your company.
Adopt a third-person perspective
If you’re having a hard time separating and getting to the core of your emotions to make a rational decision, try to think about it from a different perspective. How would someone viewing this problem from the outside choose to divide the equity between you and your partner? If it’s too hard to adopt this perspective, try actually asking someone on the outside. Give them only the factual information and see what they have to say.
Once you have a plan, put it in writing!
Once you’ve gone through all this work to come to an agreeable equity split make sure you actually put it on a Shareholders Agreement! Putting down your equity split in a legal document will secure your arrangement in the future and remove any ambiguities. If you need more help, you can always book a legal session with us.