One Way To Divide Your Company Equity At Start-Up

As a game developer who's ventured into the start-up world, I've navigated the tricky waters of dividing company equity among partners. This experience has taught me the value of trust, clear communication, and straightforward agreements. I want to share insights and methods to help others in similar positions.

Starting a company is akin to setting out on a grand adventure. It's thrilling, fraught with unknowns, and requires a deep trust in your fellow adventurers. In game development, where passion projects can quickly evolve into start-ups, the question of how to divide company equity often comes up early. Trust is the foundation of any successful partnership, especially in the volatile world of start-ups. Without it, even the most promising ventures can unravel. Trust is built through honest conversations and clear communication, particularly when discussing sensitive topics like equity division.

When my partners and I embarked on our start-up journey, we began with straightforward, honest discussions about our expectations, contributions, and visions for the company. These initial conversations set the stage for a partnership based on mutual respect and understanding. We opted to document our agreements personally before formalizing them into legal documents. This approach clarified our intentions and ensured everyone was on the same page.

Dividing equity can be approached in several ways, but we focused on two main methods: a simple division among original partners and an algorithmic method based on contributions over time. The initial contributions were varied, so we opted for an algorithmic method to determine equity distribution. This method considered both "sweat equity" and financial investments, allowing us to calculate each person's share of the company automatically.

Clear agreements are crucial to avoiding misunderstandings and conflicts. For instance, you can draft simple contracts for stock options and angel equity, specifying terms like vesting over four years and converting angel equity to a loan if an employee left before two years. These personally written documents should be straightforward to understand, which will help prevent disputes and confusion down the line.

Discussing these topics openly can benefit the larger start-up community. If interested, I'm open to diving deeper into specific issues related to start-up life in future articles. I encourage readers to share their feedback and requests for more information in the comments or forums. Building a start-up is a journey best undertaken with a map, and by sharing our experiences, we can help each other navigate more effectively.

First published January 28, 2009 and last updated at February 18, 2024