The High Cost of a Third Co-Founder

Continuing with yesterday’s post on Co-Founder Equity Ideas, there’s another point that needs to be made: adding a third co-founder can be one of the most “expensive” things a founder does, assuming equally split equity. Think about the standard scenario where there are two co-founders, each with 50% of the company. Now, introduce a third, equal co-founder where each has 33% of the company. The original two founders would have 33% less — that’s a huge amount of dilution.

Here are a few thoughts on a third co-founder:

  • Two co-founders is almost always better than three, especially when there isn’t a clear division of responsibilities, as it’s easier to make decisions and get everyone on the same page
  • Adding a third co-founder with equal equity results in substantial dilution for the first two co-founders
  • Consider adding the third co-founder down the road once the startup has made more progress and the co-founder can be brought on at a different equity level (they could be an advisor in the interim)
  • If the startup raises money, there’s often the ability to pay more salary and less co-founder-level equity, such that the dilution from the investment is better overall for the original founders

Think about the great tech success stories like Apple, Amazon, and Google — there’s rarely more than two co-founders. Know that having a third co-founder is rare and brings with it a high cost.

What else? What are some more thoughts on the high cost of a third co-founder?

2 thoughts on “The High Cost of a Third Co-Founder

  1. A benefit of three co-founders is it makes it easier to vote on tough decisions. Once 2/3 agrees the 1/3 will come along or be overruled. Been there.

  2. I understand the intent of this post, but I think it really depends upon the situation. At Kabbage, we had three co-founders but I’d offer that the company would not have succeeded without this configuration. I brought the idea, legal, some deal and finance/accounting expertise, Kathryn Petralia brought credit and payments expertise and Marc Gorlin brought fundraising and BD skills. We understood how to recognize each other’/ skills and defer as needed on decisions, and how to identify and correct challenges as they arose. Sometimes companies have 3 founders because that’s the only way they’ll actually become a company. I don’t believe there’s always a decision to be made.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.