March 14, 2023

How Startup Founders Should Build their founding Team and Divide Equity | Concept Ventures

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Below we discuss the considerations and challenges of building your startup's founding team.

Founding Team Composition

Any successful startup founder or investor will tell you that a strong founding team is essential for success. But who should be on your founding team, and what role will you each play in the company?

The CEO is the obvious choice - they're the one with the vision and the drive to make the company a reality. But a good CEO knows that they can't do it all alone, and this is where co-founders come in.

A co-founder is someone you can trust to help you navigate the ups and downs of starting a business. They should be someone you're long-term aligned with, as they'll be instrumental in shaping the culture and direction of the company. Beyond the CEO and co-founder, there are a number of other key roles that may need to be filled in order to have a successful startup. These include a Chief Operating Officer (COO), Chief Technology Officer (CTO) and sometimes a Chief Financial Officer (CFO). Each of these roles plays an important part in ensuring that the company runs smoothly and efficiently. With a strong founding team in place, your startup will be well on its way to success.

Typical profiles of each role:

Jeff Bezos, former CEO of Amazon - Credit: Getty Images
Chief Executive Officers - CEO

The person taking on the CEO role is likely to have a strong sense of self-belief mixed with an appetite for risk-taking; often finding themselves focused on the bigger picture and broader strategy. These traits make them best-suited to build and lead the company; from creating and delivering their vision of the future, to motivating and inspiring the team around them to engage in that journey. In early-stage companies this is a wide-ranging role that entails strategy, product, operations, hiring etc. but evolves over time to become focused on ensuring the business is well-capitalised and attracting world-class talent.

Jeff Bezos (Amazon), Susan Wojcicki (Youtube) and Elon Musk (Tesla) are all strong examples of inspirational CEOs who’ve pushed the boundaries in their respective industries.

Sheryl Sandberg, former COO of Facebook - Credit: World Economic Forum

Chief Operating Officers - COO

COO-types typically find themselves as having a balance between being highly detail-oriented and a strong mediator - placing them well to lead on these three key areas of a startup's early life: (i) creating a framework to deliver the company vision, (2) executing the framework and monitor results with the company’s key goals in mind, and (3) lead the team day-to-day. In reality, this means establishing and scaling internal processes as well as ensuring the company is compliant with regulations in their respective jurisdictions/industries.

Sheryl Sandberg (Facebook), Tim Cook (Apple), and Kevin Turner (Microsoft) are all prolific examples of company execs with strong operator profiles/traits.

Thuan Fam, former CTO of Uber - Credit: TechCrunch
Chief Technology Officers - CTO

The CTO 'type' will typically love going by the numbers; seeking a data-driven route to decision-making, and driving for accuracy and precision in the completion of all tasks. As such, they can be counted on to (i) connect technical solutions to the day-to-day operations and (ii) lead data-driven decision-making in the company. Ultimately they will often oversee the largest and most expensive team (engineering/tech) within the organisation so will need to be able to hire, manage and delegate.

Strong technical profiles can be found in the likes of Thuan Pham (Uber), Oskar Stal (Spotify), and Greg Brockman (Stripe).

With the above profiles in mind, it’s important to ensure the people you are bringing in as co-founders or very early hires are extremely well aligned and suited to the company's mission, in terms of both culture and skillset. Once you’ve settled on which co-founders will be joining you on the journey, you need to decide how you will keep them bought into the business for the long-term

Early-stage startups are cash-strapped and resource-limited, meaning they will expect compensation in other ways. This brings us to the question of founding team equity:

How ownership and equity can be determined among the founding team members

Determining how ownership and equity are divided among the founding team members is a crucial process and one you should think long and hard about. While there is no single "right" way to go about it, there are some general principles that can help guide the decision-making process. 

Equity is Precious

One common approach is to allocate equity based on the time and effort each founder has put into the business. If you start the company, quit your job, work on it for a year and begin generating revenues and then a late co-founder joins - logic might dictate they shouldn’t be entitled to quite as much equity as you. That being said, equity is your company's most precious asset. Although it initially seems ‘disposable’ (as it originally costs you as a founder nothing to allocate), it is your best tool and resource for attracting, retaining and incentivising top people to your business (as well as investors). 

Ultimately, deciding how to divide ownership and equity among the founding team members is a complex and often sensitive issue. There is no easy answer, but careful consideration of all options will help ensure that the final decision is fair and equitable for all parties involved.

We will talk through some of the most important factors to consider when dividing startup equity. 

Concept Ventures Advice 

Concept Ventures has worked with 40+ UK companies at the pre-seed stage, and we have seen many success stories, as well as some mistakes made from time to time. In the following section, we run through our top 4 pieces of advice when it comes to thinking about equity at the pre-seed stage. 

Set proper vesting schedules

Without vesting, equity can get very messy very quickly. Vesting schedules are an agreed rate (typically between founders and investors) at which the founding team/their employees will ‘earn’ or unlock their equity. 

The easiest way to show this is through an example. (e.g. is of a four-year vesting schedule with a one-year cliff (vesting monthly)) 

What this means is that upon completion of a round, a founder has 0% of their equity vested for the first 12 months. Once the cliff is reached, they will have 25% of their share of equity, and then earn 1/36th of the remaining 75% each month. 

If the employee/founder leaves the company, depending on whether circumstances and documentation dictate you a ‘good’ or ‘bad’ leaver, they will be entitled to keep their shares and will generally forgo the unvested portion of their shares. 

As you can see, equity is unlocked and earned as you continue to grow the business. Co-founder breakups are one of the most common and disruptive occurrences in early businesses and therefore regardless of how close you and your co-founders are, you should get any outcomes from your ownership discussions written up in a ‘Founders Agreement’ to cement ownership structures and vesting as soon as possible. 

Value your co-founders, a lot can be learned from cap tables

When looking at an investment opportunity, VCs and professional startup investors place a lot of emphasis on the founding team. At pre-seed, (where we invest), this is often the most important consideration. If you are a 3-person founding team, and the equity split isn’t 33% each - investors will question the quality of the team members and why you aren’t valuing them equally.

Is the founder with less equity weaker than the others?

Do the other founders not trust them with a large stake in the company?

Equally, if an impressive co-founder only has 1-10% of the company, investors may question their long-term alignment and the chance of them sticking around for the long run. 

Are they less bought into the mission? Did they join late as they didn’t believe in the wider team at inception?

Ideas are cheap

As the old adage states, ideas are cheap. 99% of the time startups are more than just finding an ingenious idea, with the real value coming from execution and delivery. Just because one of the founding members originally came up with the idea, it doesn’t necessarily entitle them to any more equity than the other co-founders. Successful businesses result from well-built functions and systems, which can rarely be achieved by one person alone. Incentivise the executionists and those who pull their weight, focusing less on the origins of the idea. 

Startup advisor equity

Should startup advisors be paid? On the topic of equity splits at pre-seed, something we see over and over again - advisors getting disproportionate equity stakes within a business early on. Advisors can be hugely helpful in very specific ways, and often they can really move the needle for a business in the early stages. But what companies need to realise is that again, their equity is extremely precious and the people around them should be value additive, not extractive.

There are no hard and fast rules here but it’s generally a red flag if a part-time ‘advisor’ is requesting a salary. Most advisors will be relatively experienced, senior and have disposable income, and you should then look for them to be involved as angel investors, needing no salary or additional equity allocation. For others who fall outside of this category, often academics or others with limited disposable income, founders should explore equity as a form of remuneration (possibly through the option scheme). Usually an individual advisor should receive no more than 1% of the business at most (remember this could one day be $1m+ in value you could incentivise other more impactful candidates with).

If you're an early-stage founder looking to raise pre-seed funding, then be sure to reach out to one of our team directly. Concept can lead pre-seed rounds of up to £1.5m in businesses across the UK changing how we Work, Learn & Play.