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Joel Spolsky's method for splitting shares in a startup  

Excellent, in-depth method. Worth reading through carefully to understand Joel's method and thinking. Some of the key points:

  • All founders should get an equal share (no matter who had the idea). Trying to calculate an uneven split is not worth the trouble.
  • Each successive layer of employees split an even-sized yearly pool (among progressively larger numbers of employees).
  • All shares vest, with a vesting schedule such as 25% in the first year and 2% for every successive month.
  • External investments just dilute everyone.
  • If an early employee/founder needs to take a salary, don't solve that problem with a different share allocation - just keep track of how much he/she was paid, and give an IOU to the other founders.
  • Having the idea doesn't mean you should get more equity.
  • People who don't work full-time on the idea are not founders.
  • If someone contributes assets to the company, pay them in cash or IOUs, not shares.

Great tips, well worth reading, though I think the startups that applied all of them can be counted on one hand.

More from the library:
What does the business guy do pre-launch?
Frog Driven Development
Look for opportunities rather than ideas