Founder equity allocation
How founders divide ownership stakes in a multi-founder LLC.
Definition
Founder equity allocation is the process of dividing ownership stakes among multiple founders. Equal split is simplest but not always fair; sweat equity, capital contributions, and ongoing role differ. Tools like SlicingPie and FrameworkVentures provide allocation frameworks.
Context
Critical decision affecting multi-founder LLC dynamics for years.
Example
Two co-founders: one contributes $100K capital, the other contributes 18 months of full-time work pre-formation. Equity allocated 50/50 with vesting and capital-account preference for the cash investor.
Common pitfalls
- Equal splits often regretted later when contributions diverge.
- Vesting protects against future divergence.
- Operating Agreement should specify allocation in detail.