Key Takeaways
- Equity conversations are easier before the company has value than after.
- An informal equity arrangement is an expensive misunderstanding waiting to happen.
- Vesting schedules protect the company and the co-founder. Both should want them.
There are specific conversations that founders consistently defer because they are uncomfortable, and the equity conversation is reliably at the top of the list. How much does each co-founder own? What happens if one leaves early? Who decides when someone's equity should change?
Saim Abbasi has seen co-founder equity disputes derail companies that had excellent products and real market traction. In every case, the dispute traced back to an early conversation that was vague enough to be interpreted differently by each party.
What Needs to Be Written Down
The minimum documentation for any co-founder equity arrangement is a shareholders agreement that specifies: the ownership percentages, the vesting schedule for each founder's shares, the conditions under which someone can be diluted or bought out, and the decision-making process for major company decisions. None of these are hostile provisions. They are the rules of the game, written before anyone has an incentive to interpret them favorably.
The Vesting Misconception
Many first-time founders resist vesting schedules because they feel like a sign of distrust between co-founders who are fully committed. The correct framing is the opposite: vesting protects both founders by ensuring that someone who leaves the company early does not walk away with ownership that was intended to compensate years of contribution. A co-founder who is fully committed should be comfortable with a standard vesting schedule because they intend to be there to earn it.
"The equity conversation you are uncomfortable having today is the lawsuit you are comfortable avoiding in three years."