Why cofounders should not split 50/50
Not all cofounders are made equal.
Hi, it’s Melissa, and welcome to “your founder next door”, a bi-weekly column with relatable stories of my journey bootstrapping eWebinar to $5m ARR. No BS, just straight-up truth bombs on what it’s like to build a company without an abundance of resources or friends in high places.
The Big Aha! 💡
This is the story of how I learned “cofounders” does not necessarily mean equal partners, and why you should never offer to split your house in half before fully understanding the responsibilities that fall under each person.
Backstory 👩🏫
Recently, I read a couple posts on LinkedIn about how cofounders should not split equity 50/50 because one person has to be “in control”, the decision maker and tie breaker when there needs to be one. Seeing the number of people who agreed with those sentiments inspired me to share my story in this newsletter.
I don’t agree that the intention behind a cofounder equity split should be about “power” – if that is your starting point, maybe you have the wrong cofounder…or maybe you are the wrong cofounder.
Building a company together is not about exercising control over each other’s decisions. Critical decisions are made over intelligent, informed, and respectful discussions based on each person’s expertise, and complete trust from everyone else that the person making that decision is, in fact, the best person to make it. I recognize that is the holy grail of business partnerships, and if you currently have that dynamic, you’ve hit the jackpot. If you don’t, that is perhaps something to strive for.
Rather than being about “control”, equity split should be about what is fair. Just because you are cofounders, does not mean your responsibilities are weighted 50/50. A business cofounder (CEO) and a technical cofounder (CTO) have vastly different capabilities, and therefore, vastly different responsibilities.
I learned this the hard way previous to eWebinar by cofounding two startups over 9 years with an equal equity split, where I built the majority of the business but my cofounder made out financially better than me post acquisition. The gradual realization and impact of our tremendously unequal sacrifice brewed enough resentment to eventually break a would’ve-been beautiful friendship between two people who spent an era together.
Let me tell you what happened…👇
The problem: Inexperience and lack of confidence 😒
I started my first company at 27. I had no idea what I was doing. There was no YC, no Techstars…just Meetup.com. I lived in Vancouver (Canada! 🦫 at the time ), had just quit SAP where I was an inside sales exec, and was a newly minted entrepreneur, full of hope and optimism. A group of us aspiring founders would meet at bars and talk about our startups ideas; where I was repeatedly told how hard it would be to find a technical cofounder and how lucky I’d be if I came across such a person, someone who’d be willing to devote their time to my startup amidst a sea of others.
Having never built a company before, I had no concept of what it’d take to build a business. I use the word “business” here because a startup is a business, not a product. A business is all encompassing, whereas a product is what you sell. More on this later…
Shortly after quitting my job, I hired a contractor who had just graduated from university in Computer Science. He didn’t want to follow the traditional corporate path and decided to try his hand at software development right out of school. We didn’t always work well together, but we had immense respect for each other, and eventually became cofounders over two companies.
I was so grateful to have a technical cofounder when most of my founder-peers were still on a perpetual search that I didn’t even think about an unequal split. I felt like (and was also taught) that I had to do whatever I could to retain my CTO because of how often the good ones get poached.
I would learn years later that while it’s true great CTOs often get recruited (sometimes even by your “friends”), recruiting and retaining them requires much, much more than equity. (On my podcast, ProfitLed, S2E5 Recruiting a Top 1% Cofounder and CTO, I dove into this topic in detail.)
The reality of the situation was, we were both fresh off the boat founders who had never built a startup. We followed generic advice and took the textbook path: find a cofounder, split the company in half, build an MVP, raise capital, pump revenue, sell for millions, retire. I had no idea about the work that was ahead of us as CEO and CTO, and how much more I’d have to do beyond coming up with the product idea the delegating the development. I didn’t have enough experience to value myself adequately as a business cofounder with a sales and business development background (massive brownie points), and didn’t have enough confidence that I could deliver more than my CTO counterpart. I just felt incredibly lucky to have someone to build my company with and ignored everything else.
Looking back, I could never have known how to have equity split conversations upfront and why that would be necessary. I didn’t know better (how could I have?) – which is the reason I’m sharing this story and my opinion with you now, 14 years later.
Then what happened?!👂
What happened next was almost a decade of grueling startup grind with two mediocre businesses. 😰 I won’t bore you with the details, but I will tell you this…
I had a bunch of (bad) ideas which we tried for almost 2 years before we made our first dollar. Our first startup lasted around 4 years before it transitioned into the second, which we sold in year 5. During the entire period, I lived as frugally as I could to make sure my cofounder and other team members got paid.
In the beginning, I had $100k saved which I invested in the business. When that ran out, I applied for government grants and bank loans under my name, so I was personally liable for paying those back. I came up with every idea, every pivot, and actively tried to raise capital in parallel (though was never successful, something I spoke about on ProfitLed S1E1 and why I became a bootstrapper).
For years, I would only pay myself what was leftover in our account to cover basic expenses like rent. This period was also where I had my darkest days as an entrepreneur, which I shared about here. The most I ever paid myself before my last startup was acquired was around US$45k a year and was carrying hundreds of thousands of dollars worth of debt in bank loans. (I used to think founders should get paid last and the least. After putting myself through the trauma of being in survival mode for years, I'm now in the opposite camp. I wrote about that here in this post.)
Miraculously, we never missed payroll even though we got close a couple times. I found side projects we could work on to cover the next one, then the next one…until we found some product market fit with Spacio, my last startup. We eventually became profitable, but I was always the last to eat, and I ate the least. Even though my cofounder never got a “market salary”, he always got one and I didn’t.
If you’re wondering why I took all this on by myself…I can only say this: Founder guilt is real. I sold my vision to my cofounder after he graduated so he would join me and we could conquer the world. Instead, we cycled through various products trying to make ends meet. Even when we found products people were willing to pay for, we couldn’t offer salaries high enough to attain the lifestyle I had promised. I hated the fact that I was failing on my word. I hated that I was letting him down so in turn I gave him everything that I could, even if it was at the expense of my own wellbeing. I put myself in a place of suffering because I thought I didn’t deserve more. I glorified the place I was in because I thought I needed to suffer in order to succeed. I convinced myself that it was no big deal and that all this was part of the journey to success. (Plot twist: Self-sacrifice is not glorious and suffering is not an ingredient for success.)
One day, my cofounder asked me, “What do we do if we can’t make payroll?” (Translation: What do we do if I don’t get paid on the next cycle?) “We keep moving forward!” I said. “What does that mean? I can’t not get paid.” He said. It was that moment when I realized that my cofounder had a completely different risk profile than me. I had been struggling with barely anything for years and had never once thought, what’s going to happen to me?! I knew that if we kept trying, we would prevail. Up to that point, I thought he didn’t make the same financial and lifestyle sacrifices as I did because I was considerate enough to not ask for it…but reality was that he simply did not have it in him to do the same even if it was required. As an equal partner, he couldn’t even bear the thought of missing a single paycheck; that was a wild realization for me.
It was also at that moment, my heart sank knowing that our equity split was “unfair” relative to our responsibilities, investment (emotional and financial), and pain.
Outside of the obvious financial investment and lifestyle adjustments, I was the one who built and nurtured every customer and partner relationship, I traveled to every conference necessary to close deals, I put myself out there to peddle bad products and got feedback to iterate until it became economically viable. I was biz dev, sales, marketing, customer success/trainer, product manager, QA, support, recruiter, HR, accountant, ops…I was literally everything except for code.
I don’t want to make it sound like my cofounder wasn’t great – he was. He had complete trust in every decision I made and unwavering loyalty, which was imperative in a struggling startup. He built the product as well as he could based on the information we had, and the limited team we were able to afford. He never questioned my dedication and was my biggest cheerleader throughout. He was a solid partner. But, he did not make the same sacrifices I did. He did what he was supposed to to the best of his abilities, but his skill set was limited to software engineering.
I’ve always heard cofounder conflict stories around how one feels like they’re doing more than the other and it didn’t seem “fair”. I never thought I would be one of those…but eventually, that was how I ended up feeling; not because I thought I was doing too much, but because I didn’t feel like I would be rewarded enough for the effort I was putting in. Once you start having these thoughts, resentment starts brewing. And as we know, resentment is the silent killer to any relationship.
When that startup was acquired, I was still a Canadian and US dual citizen, which meant I couldn’t take advantage of Canada’s Lifetime Capital Gains Exemption up to ~$525k (major tax exemption) like he could, which made it extra frustrating because of how much it impacted my net proceeds. That felt like a final twist of the knife…
Reality check ✅
A business is SO MUCH MORE than its product. A business is the idea, the execution, sales, marketing, relationships, brand, product, recruiting, retention, accounting, capital, risk. The product is what you sell and how you make money, yes, but a product without everything else will never see the light of day.
The CEO is the visionary that builds the business, and the CTO builds the product. One can argue that an experienced CTO does a lot more than building the product, and while that is true, even a top 0.1% CTO will very, very seldom contribute the same to the business as the CEO.
A CEO who only gets 50% makes no sense to me. A founding CEO cannot be easily replaced, especially before a startup is fully established. Most importantly, a CEO makes sure there’s money in the bank to keep the business going, including everyone else’s payroll, sometimes at the cost of their own income. What is that worth?
What I did instead with eWebinar 🤝
After having this experience, I took a different approach with my current cofounder at eWebinar, David, who is also my life partner. We had an honest conversation before he agreed to join me as my Cofounder and CTO a year into the business.
I said to him, “You watched me build my last startup. You know what I’m capable of and am willing to do for my business. These are the things I will do for eWebinar, these are the things I believe you will do, and you can correct me if I’m wrong. Knowing that, what is the percentage of equity you’ll need to feel like you have fair ownership and fully invest in the business?”
He named his number, we agreed on it, and it was never talked about again.
Since we were both experienced in startups at this point, we acknowledged and respected the work cut out in front of both of us, which made that conversation very easy. It took no more than 10 minutes. With the right cofounder, this kind of conversation does not have to be difficult or emotional. It’s just business.
The biggest lesson I learned through all of this is:
“Cofounders” does not necessarily mean equal partners, and you should never offer to split your house in half before fully understanding the responsibilities that fall under each person.
Reflections 🪞
There are many different ways to split a pie. I’m not saying that I have the magic formula. But as someone who lived through the story I just shared, I can tell you how much it sucks to contribute significantly more (eg. 65% or more) and get equal (or less) of the deal.
Nothing matters until money is on the table, and when the deal is in front of you, you bet you’d wish things were equitable for the years you put into your company.
List out every responsibility required to build a business with your to-be-cofounder and see what each person has the ability and capacity to take on. Then come up with a fair equity split such that each person can feel like they have enough of the business according to their contribution and not feel like they’re getting the shorter end of the stick. You’ll be happy you did this exercise upfront.
Anyone who fights for 50% but can't justify the split more than having the “cofounder” title – run.
Some stuff you might find interesting 🤩
ProfitLed Podcast: S2E5 Recruiting a Top 1% Cofounder and CTO
ProfitLed Podcast: S1E1 Bootstrapping vs Venture Capital — Why Bootstrapping is Better
LinkedIn Post: My darkest entrepreneur moment from the last 13 years in startups
LinkedIn Post: Why I think founders should get paid first and the most
Newsletters I follow (and think you should too) 🗞️
Kyle Poyar: Growth Unhinged - In-depth case studies and deep dives on pricing & packaging, go-to-market strategy, SaaS metrics, and product-led growth.
Leah Tharin: ProducTea - Product-led B2B expert with 25 years of operator and executive experience, curating actionable advice for founders and CXOs who want to connect their product to revenue at scale.
Greg Head: PracticalFounders - Weekly interviews with founders who have built valuable software companies without big funding.
Kristi Faltorusso: The Journey - Relatable stories, learnings, and advice from 13+ year professional journey in Customer Success, leadership and SaaS.
Thank you for reading!
— Melissa ✌️
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The only way this grows is by word of mouth, so I’d really appreciate all the help you’re willing to give.
Good insight 😌 Can i translate part of this article into Spanish with links to you and a description of your newsletter?