Capital Ownership

How many shares should you give away initially?

The next question to consider is how much of the company's shares to grant each founder. Naturally, your co-founder(s) will expect to own a share of the company in return for their involvement and risk-taking. You also want to motivate them to give it all to the venture.

There is no easy answer. However, there are several factors to consider when working on your proposal. First, aim for a founding team where each member contributes equally in terms of time and financial sacrifice. Ideally, each member should give 100% effort and have the same "skin in the game." While this may be difficult to achieve, it will create a strong foundation for your venture.

Next, assess the industry expertise, network, and core skills that you or your co-founders can bring to the venture. If you have managed to attract a superstar to your founding team, you might consider increasing her ownership stake.

If you have been nurturing and working on a big idea for some time, make sure to keep the majority of shares and voting rights at the company foundation. Highlight in your shareholder agreement that all key decisions require a simple majority, so that you retain control over those decisions. Then split the remaining shares among the other founders based on their expected contributions.

The capital of the “first” flyiin round was split equally among the original founders. At the time, I naively thought it was the right thing to do. I believed it would create momentum and secure complete dedication among the founders. When making this decision, I failed to consider the following facts: 1) I had no prior experience working with the other founders, 2) one of them was still running his agency, and 3) I had a wealth of industry contacts to contribute. Although the departure of the first founder a few months later did not significantly disrupt the venture, my lack of clear thinking on the matter would lead to a much more complicated situation a few years down the road.

After the first founder breakup, the remaining founders repurchased the shares of the departing founder in a 50/50 split (tell me about learning from mistakes!). In 2019, new investors (finally) came on board to fund the “second” flyiin, they asked for the remaining original founder to be removed from the cap table. Although he could have easily blocked the deal, he realized that doing so would go against his interests, and he agreed to leave the company with a payout acceptable to the investors. This allowed my lead developer to become my sole and final co-founder and a shareholder in the company. The founders’ cap table became cleaner and healthier—in my view, reflecting the sacrifices I had made over the previous three and a half years.

Key Takeaway #7

When creating a company, it's important to keep, at first, the majority of shares and voting rights for yourself. Don't compromise on this. You need to maintain control of the key decisions that will impact the venture, particularly if you are the driving force behind it and bring the network and domain expertise needed to put the company on the map.