How to Divide Up Founders’ Shares

Q: How should shares in a startup be divided between 4 co-founders? If we have equal shares, what if one of us puts in a cash injection at a later date?

You’ve got two good, different questions here.

Question #1: How should you divide shares up between 4 co-founders?

• First, whatever you do, make sure the shares vest — for all of you. 4 co-founders is a lot, and it’s likely 1 of you will leave. Make sure it’s fair to the rest. 4–5 year, or ideally longer, protects the most committed. A bit more on that here: A Simple Commitment Test For You And Your Co-Founders | SaaStr
• Second, the ratios just need to be fair. Usually with 4 co-founders, 1 or 2 are doing more, or adding more value. If so, a 2:1 or 3:1 ratio is common for their shares. If everyone really is equal, you can make all shares equal. A bit more here: At the Top SaaS Companies, Founder-CEOs Own ~15% at IPO. And Most Co-Founders Are Not Equal (And That’s OK). | SaaStr

Here are the founder equity ratios at a bunch of SaaS and cloud leaders:

OK, now what if in the early days, one founder puts in a cash injection?

• The simplest thing is to pick a low & fair price for the shares — and issue them more shares. E.g., you could pick at $2m nominal valuation, and if they inject $50k and the others don’t, they’d buy 2.5% more of the company. This is fair.
• Less common is treating the cash injection as a loan, that you pay back when you can. But if it’s pretty small, this can be simpler. I’ve done both routes myself.