The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup

by Noam Wasserman

Past Contributions: How much has the founder contributed to building the value of the startup so far? a. Idea Premium: Founders who contribute the original idea on which the startup is based have made a unique contribution to the venture.* b. Capital Contribution: Founders who have made larger contributions to the startup’s seed capital should see a proportionate increase in their equity ownership.10 2. Opportunity Cost: What are the founders sacrificing in order to pursue the startup? 3. Future Contributions: Most of the work required for the startup to be successful will come in the future, but these contributions can be hard to anticipate. How much can each founder be expected to contribute to the value of the startup down the road? a. Serial Founders: Members of the founding team who have previously led a startup to a successful exit can be expected to contribute more human and social capital down the road.† b. Level of Commitment: Founders who are committed full-time to the venture can be expected to contribute more value. c. Titles: The official positions of the members of the founding team have been shown to influence equity splits, with CEOs receiving a substantial equity premium.‡ 4. Founder Motivations and Preferences a. Wealth Motivations should lead founders to prioritize larger equity stakes. b. Risk Aversion and Optimism will affect how much priority a founder places on gaining equity versus cash compensation. c. Tolerance for Conflict will affect ...