How much equity is fair for my co-founder that is leaving after 2 years and $50,000 invested in the company? The company is about to launch.

Stock contracts aside, the best you can do is what is fair.

Here’s how I might think about it:

  • $50,000 invested at say $1m valuation = 5%
  • 10 year commitment as founders; he did 2 years of it. So vis-a-vis the 2 of you, she/he might get 20% x 40% (if your equity ratios are 40 you:40 her/him: 20 others), or 8%.
  • So 5% + 8% = 13%.

That’s a lot. It may be too much. If it feels unfair, re-evaluate. It also assumes no other funding. That funding would dilute the maths substantially (and might lead to a number that seems more fair).

And you’ll certainly want some sort of proxy / voting agreement where they have to vote with you on funding, M&A, etc. if they own > 5%.

But the math seems about right.

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Published on April 13, 2019

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