How To Allocate Ownership Fairly

It is important to have a solid plan for allocating ownership in a startup. I have read and stored many articles describing best practices for ownership allocation. I have an entire Instapaper folder dedicated to the topic.

Of all the things I’ve seen on the topic, nothing is as good as an answer Joel Spolsky gave on the topic in response to an OnStartups question. I noticed today that OnStartups has taken that section of their website down, so Joel’s comments have been lost.

Luckily, the Wayback Machine has a copy of it. So I’m including a link to the Wayback Machine, along with a PDF printout of the post in case it totally disappears at some point.

Here are some salient points from the article:

• Fairness, and the perception of fairness, is much more valuable than owning a large stake.
• The founders should end up with about 50% of the company, total. Each of the next five layers should end up with about 10% of the company, split equally among everyone in the layer.
• You must have vesting. Preferably 4 or 5 years. Nobody earns their shares until they’ve stayed with the company for a year.

I have written before about initial equity sharing agreements.

What are your thoughts on allocating ownership fairly? What guidelines do you follow?

Related articles

• The Right Way to Grant Equity to Your Employees
• 5 Reasons to Work for a Start-Up
• The score is 4:1 – do you still have doubts on how to split founders equity?
• One Way to Grant Equity to Your Employees
• How to Calculate Equity Split Between Founders in Startups
• The Engineer Crunch
• Equity crowdfunding comes to startup scene