Is 50% Too Much To Ask When Co-Founding A Company?

If you are worth it, you should claim it. But ownership and control are not the same.

Equal percentage ownership in a company does not necessarily need to yield an equal ratio of voting rights. Meaning a 50% ownership of the company does not necessarily mean the voting rights are split equally; by default, most attorneys will set it up that way, but that can easily be set up differently from the start based on your directives.

The real issue is that running a company is not some social experiment the way it is so often portrayed. Running disruptive innovation requires a benevolent dictator who can drive the bus. And there can only be one driver of the bus.

With that in mind, you can have 50% ownership in the company, and assign the driver of the bus slightly higher voting rights (either through a ratio disparate from 1/1 with equity or by issuing different classes of stock). Or you can issue a 1/1 ratio with equity and assign more equity to the driver of the bus.

The beauty of voting rights is they can be entirely out of sync with equity ownership (as they are, for example, at Facebook). Albeit depending on the company in question, my interest as an investor to own a piece of the company would be a function of my interest to trust or influence the outcome. Investors generally prefer the simplicity of the 1/1 ratio.

The equity/voting ratio creates a healthy dependence on both founders going through the formative stages. After the first round of investment (and stock-option pool allocation), the cap-table will yield each founder to have less than 50% of the company (yet conjoined a majority) and thus, in essence, still be dependent on each other to make it through to the next.

The point is that as founders, you must first sort out who leads and who follows. You must assign a driver of the bus, and establish your trust in the founder who leads. Because if, as an investor, I “smell” you don’t, I will not be the one investing, and smart employees will not be willing to follow.

 

Let’s lead the world by example with new rigors of excellence we first and successfully apply to ourselves.

Click to access the login or register cheese