One of my co-founders is suggesting that we split equity based upon the number of hours each person puts in until we obtain funding and begin drawing salaries.
In other words, each person would be issued vesting shares equal to
Most startups split equity at the beginning of the venture, rather than use this approach. Why not use this time-based approach?
(their # of hours) / (total # of hours)
If you're working towards funding with the intention of going full-time, what ought to drive the equity split is that fact, your roles going forward and what you're each bringing to the party.
So my first thought would be that if the level of inequality is beyond what seems reasonable, then keep track of the salary sacrifice and think of it as an obligation between co-founders first and foremost.
What's 'reasonable' can vary a whole bunch. What's key is to avoid getting into a situation where someone feels taken advantage of. Discuss it, agree how to work, and keep it under review. No-one should feel they're signing a blank cheque of hours - and in most cases, no-one should feel they can just sit out the hard work until the money comes in!
Splitting equity equally is an obvious, but bad approach. But, micromanaging hours spent is just as bad. You have two extremes; one with no granularity or differentiation, and the other with way too much picayune detail.
See my post here for a summary of my approach.
As a side note, if anyone is actually laying down serious funding money out of pocket, beyond paying for business cards and such, they should be paid in preferred stock, as any investor would.