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About 8 years ago equity broke my business and severed one of the best friendships I ever had. If we would have set things up more fairly in the beginning this all would have been avoidable. Instead we had to dissolve the business and abandon the brand we both worked so hard to create.
In case you’re not familiar, your “equity” refers to how much you own of a business. In the startup world it’s what I might want to pay you until we start making cash. Equity is kind of like a promise for future cash. If you work for me for equity I’m promising you I’ll try to make it worth a lot some day when we sell the business or some other financial event occurs.
In my opinion the only fair way to do equity is something called the Dynamic Equity Split. Instead of equity being divided up in the beginning (too early) or when investment comes (too late) this method divides up equity as the company is built. Equity is dynamically based on the quantity of resources each person puts in.
