Splitting the Pie: Jumping the Gun?

Is it good to split the pie “as early as possible”?

I just ran into an equity-splits document at the site of MIT’s Deshpande Center. It is a summary from a workshop entitled “How to Split Equity – Faculty Entrepreneurship Workshop.” The workshop seems to have focused on founding teams where one member is a faculty member (often only working part-time on the venture) and the rest are non-faculty (usually working full time). However, outside of the case vignettes they use, many of the lessons cited are more generally applicable to any type of founding team.

One sentence stood out, though, and worried me:

“The panelists unanimously advised faculty entrepreneurs to make decisions about founder’s equity – preferably with a lawyer present – as early as possible in the process of founding a company.” [italics added]

My concern: Without some additional, dynamic element that allows for equity adjustments later, splitting very early would seem to be worse for most ventures than if they were to wait until roles and strategies become more defined. Even better is an early split accompanied by a dynamic agreement; you get the benefits of early splits without the problem of not being able to adjust the split as the company and the founders evolve.

Posted in equity split

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