I've found a great partner for my second tech startup, and want to structure this one better than the first, which made money but eventually got ugly due to poor choices my younger self made along the way.
I've spent the last couple days reading everything I can find about 50/50 equity splits, and appreciate the passionate arguments for and against them.
My situation with my partner is that we both really do think a 50/50 equity split is equitable, and not just convenient. I tend, however, to think 50/50 control is a dangerous thing, and my partner agrees.
He not only claims to be perfectly comfortable with me having control, but was the first to throw that out as we began to structure this thing.
I've been unsuccessfully struggling to come up with a good way to do a more-than-50/less-than-50 split combined with some sort of bonus to him upon acquisition to even things up, or maybe even just contributing more cash than he to justify something like a 51/49 split.
My latest idea is to make the equity split truly 50/50, but tip the balance of power (which, again, he claims to be happy to give up) by making part of his stock non-voting, or part of mine super-voting, or something like that.
So, my question: is this doable and wise? Or, at least, somewhat wise? I can imagine super-voting stock being a distraction for potential investors, so maybe that's a poor idea. Perhaps some non-voting (non-founder?) stock would be less of a distraction?
tl;dr Thoughts on splitting equity 50/50 without splitting control 50/50 by giving one partner some stock that votes differently?
It is a common misconception of entrepreneurs that control flows from owning a majority of the stock.
Stock ownership and control are separate and independent.
Control is determined by the legal documents you draw up when you form the company. The most important documents are the company bylaws, which determine how the company operates, and the shareholder agreements, which are contracts between the shareholders agreeing to do certain things.
There are many ways of setting things up, but in typical US high-tech startups with good documents drawn up by competents lawyers who often practice in this field, you'll see something like this:
Whether you start with a 50/50 share split or a 90/10 share split, you can sign any shareholder's agreement you want about who is on the board of directors. You can agree that the board of directors consists of the founder, the founder's husband, and the founder's mother in law. You can agree that it consists of Howard Schultz, Jeff Bezos, and Bill Gates (if they agree to serve). Ultimately that's who controls the company. Sometimes the shareholder's agreement says something like "two seats of the board will be elected by the common shareholders, each voting their shares proportionally," and then the equity split will actually determine the control of the company, but it is actually the exception, not the rule, for the majority of the shareholders to control the company simply by virtue of the percentage of shares that they hold.
In other words -- don't confuse equity split with control. Solve each of them independently.
IMHO the wisest thing to do as a two-person startup is to split the equity 50/50, each take one seat on the board, and agree on an independent third board member whom you both trust to resolve standoffs fairly. This independent board member is not intended to resolve every day-to-day dispute that the founders have but only to serve as a rare tie-breaker in the unlikely event that the founders' relationship has deteriorated to the point where they are unable to resolve their own disputes.
You both know sometime reaches when tough decisions should be made. It is not about power or financial benefit. Equal shares will end up you to deadlock in some point. Don't ruin fairness for 2% more shares or something like that. You need a third person who should be trusted by both of you. Whenever a deadlock is going to happen this person will prevent it.
The point is:
Even A Correct Decision Is Wrong When Its Taken Too Late This person would be stronger than both of you even with 2% of shares so he should be trustworthy. In your career you will give up more shares to key employees, new investors... so this is a temporary solution to avoid deadlocks before you reach that point.
To summarize, you both seem to agree you want to split the company fairly, but both want you to be able to control the company.
What is wrong with 51% for you and 49% for your partner. You get the control you want, and the 1% difference makes little ownership difference.
You obviously discuss this with your partner and make sure he is ok with the idea upfront.