Years ago, I was introduced to the two co-founders of a fledgling semiconductor company. I have an affinity for companies in the space, so I agreed to talk with them.
The two co-founders told me they had no funding, and they were looking to hire a VP of Engineering.
They found a good candidate for the position, and they only wanted to give him 1% equity vesting over four years. I told them the candidate wasn’t going to take the risk of joining for such a small percentage ownership.
Their answer was, “Why not? We’re going to be worth $1 billion in a couple of years.”
I told them, “I don’t think I can help you if you’re not going to be realistic about what it takes to hire top talent.” I wished them well and moved on with my life.
You either get it when comes to equity or you don’t get it when it comes to equity.
It seems to me there are two types of founders:
A. The “Spread the Wealth Founders” where the founders are very generous with equity, or…
B. The “Stingy, We’re in it Only for Ourselves Founders” where they grudgingly give out equity.
We’ve all watched Shark Tank where, seemingly every week, an entrepreneur fights to keep every single percent of his or her equity. Ask yourself this question:
“Does it really matter whether you have 80% or 90% ownership?”
You’re thinking, “Of course it matters. I’ve just lost 10% ownership.”
Of course, you’re right. But what if you are hurting your chances of success? What if 80% ownership is worth a lot more than 90% ownership? Would you still want to hold onto that extra 10%?
It turns out that being stingy with equity hurts your chances of success, so the “Spread the Wealth Founders” have a much better chance of success. Indeed, Noam Wasserman wrote about this phenomenon in a 2008 HBR article titled, The Founder’s Dilemma. Wasserman states:
“Choosing money: A founder who gives up more equity to attract…
