A short talk in which YC's Michael Seibel lays out, in four minutes, how much equity you should give a co-founder.
00:00How much equity to give a co-founder
- Many people have written about this and the advice online varies. Seibel's view is that most founders miss a few key things when they split equity.
00:23An equity split should maximize motivation
- The first key point: the equity split with your co-founder is the 'motivation' that keeps them in the seat through the years it takes to build a company with real impact.
- Co-founders often don't understand how large a time commitment is required when things go well. So the CEO setting the split has to think on the co-founder's behalf about what they'll want, even when the co-founder isn't thinking about their own long-term interest yet.
- The biggest error: "we negotiated, and this is the split we arrived at." A great CEO's first thought should not be 'how do I split this through negotiation' but 'how do I create a split that maximizes the team's motivation.'
01:32The safeguard — vesting and a cliff
- Worrying about giving equity away is legitimate (teams break up and founders leave all the time). But the main safeguard is vesting and the cliff.
- Four-year vesting = you have to work four years to actually receive all of the equity. A one-year cliff = if you leave or are fired within the first year, you get nothing.
- This is the CEO's hedge and 'get out of jail free card' — even if you picked the wrong co-founder, fixing it within a year means no long-term damage to the company.
02:21So be more generous with equity
- Because that hedge exists, it's usually better to be more generous with a co-founder's equity rather than less — because that equity creates the long-term motivation to stay through the stretches when things aren't going well (which come to nearly every startup).
- What a CEO should want: not to be in a position where they have to motivate their co-founder every single day. Instead the equity itself should make them wake up in the middle of the night to work, work weekends and late nights, recruit their friends, and feel like a real owner rather than an employee. He doesn't prescribe an exact percentage, but achieving this makes the company far more valuable and far more likely to survive.
03:21Equal splits
- He has said in the past that "most companies should do an equal split" — all else equal, equal is a good and easy default, though it can't always apply.
- What he always tells CEOs: care about your co-founder's future and motivation. If you don't care about their long-term motivation and don't think you'll need them long term, then why are they your co-founder at all? — If you don't think someone deserves a generous equity grant, reconsider the makeup of the team.
03:57Closing
- He closes by thanking the audience for their time.
📌 Bottom line
- Michael Seibel's central message: co-founder equity should be designed as a motivation device that holds the team together for years, not as the outcome of a negotiation.
- The safeguard against equity risk is four-year vesting plus a one-year cliff — fixing a bad co-founder choice within the first year means no long-term damage, which makes it the CEO's hedge and get-out-of-jail-free card.
- Because that hedge exists, it's better to give more equity rather than less — equity is what makes a co-founder work nights and weekends like an owner without being pushed every day.
- An equal split is a good default but not an absolute rule, and the conclusion is: "if someone doesn't feel worth a generous equity grant, reconsider having them as a co-founder at all."