Earlier today I was at the Southeast Venture Conference in Atlanta. Reggie Aggarwal, the CEO and cofounder of Cvent (Notes from the S-1 IPO Filing) gave a great keynote on his lessons learned as an entrepreneur. One of the more interesting points in his talk was that many entrepreneurs don’t take into account the massive dilution that comes with multiple cofounders.
Assuming equal split among cofounders, here are equity percentages:
- 2 co-founders: 50% each
- 3 co-founders: 33% each
- 4 co-founders: 25% each
- 5 co-founders: 20% each
Reggie’s recommendation is to minimize the number of cofounders (e.g. two is optimal) and to save the equity that might be extended to additional cofounders and instead use it for future key hires. Once the business is running, many executive positions that might have been considered for cofounders can be filled with considerably less equity (e.g. 1%-2% of equity is common for VP-level positions once money has been raised).
What else? What are some other thoughts on minimizing the number of cofounders to save equity for key hires?
David Cummings on Startups 
This makes sense assuming the business is advanced enough to make joining as a VP, or C-level exec less risky. Problems arise when you try to hire someone who clearly should be considered a co-founder and offer them a package that’s inconsistent with their role and level of risk.
So true. I also like Mark Suster’s take on this: http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2522