How much equity to give to a late-joining co-founder?

You had an idea. You’ve been working on for a few months. You really need a co-founder. You meet somebody.

Now the big question: how much equity to give them?

You might be thinking it’s all your idea, so you’ll give them 10% equity.

They might be thinking, no, they want 50% equity. You’re equal partners now.

Deciding how much equity to give a late-joining co-founder is one of the hardest problems. The big mistake that founders make is they overestimate the value of their idea and the time that’s been put in so far and underestimate the amount of work and value that both (or all three or four) founders will need to put into the company between now and an exit in maybe 5 or 7 years.

So I propose what I call the Back to the Future method – i.e. pretend that it’s 5 years from now. The company is now 150 people. You’ve each put in insane amounts of work, 7 days a week, to build and grow the company.

Or have you both put in the same amount of work? Maybe your co-founder still had a side job for the first year.

And how much value have you put in? Because it’s ultimately your relative value that’s more important than the time spent.

To help, I made a video on it: