Is It Worth Starting a Company with Someone Who Prefers a 60/40 Split?

Starting a business is a significant venture that requires careful partnership and trust. One of the most common concerns is the equity split among founders, especially when a split as lopsided as 60/40 is proposed. This article will explore the potential pitfalls of such an arrangement and whether it is advisable to proceed with a partner who insists on this model.

The Uneven Equity Split and Its Implications

It's not uncommon for startups to have uneven equity splits. However, it is crucial that the split reflects the value and effort each founder contributes to the venture. A significant alarm signal is when a potential co-founder insists on a 60/40 split, especially when the other party plans on being less involved. Such a split might indicate deeper issues related to valuation and trust.

A major concern lies in the initial involvement of all parties. If one person is planning to be largely uninvolved, they still expect a substantial share of the equity. This is often unjustified and can lead to conflict and dissatisfaction. The equity split should ideally reflect the contributions and value each partner brings to the table.

The Importance of Equity Allocation for Future Investors and Employees

Another crucial point is the allocation of equity. While it might seem logical to reserve 100% of the equity for founders, it is essential to anticipate the involvement of future investors and employees. These stakeholders will need equity to participate in the venture, and the founders must also have the flexibility to issue equity for strategic purposes. By not reserving equity for these stakeholders, the founders risk losing out on valuable partnerships and talent, and the venture's overall growth potential.

The Long-Term Success of a Business Partnership

The success of a business partnership often hinges on its initial foundation. A partnership that starts with reservations or second thoughts is highly likely to falter. It is important to address any reservations immediately and ensure that both parties have a clear understanding of their roles, responsibilities, and contributions.

Even if a partner has read popular blogs advocating against a 50/50 split and proposes a 60/40 split, this alone does not justify the uneven distribution. The reasoning behind the split should align with the specific circumstances of the venture. A meticulous discussion of contributions and value provided can help clarify any misunderstandings and foster a more equitable relationship.

Takeaways and Advice

Starting a company with a partner who insists on a 60/40 split, especially if that partner plans to be largely uninvolved, can be a risky proposition. The equity split should reflect the contributions and value provided by each partner. It is essential to allocate equity for future investors and employees to ensure the venture's long-term success.

Choosing the right partner and ensuring a fair and transparent equity split can significantly impact the venture's trajectory. If the concerns mentioned in the initial quote persist, it might be best to consider other opportunities where the equity split aligns more closely with the contributions of all parties involved.

Remember, a solid partnership built on trust and fair distribution is the foundation for a successful startup. Always ensure that any proposed split is justified and aligns with the contributions of all founders.