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"This paper examines the division of founder shares in entrepreneurial ventures, focusing on the decision of whether or not to divide the shares equally among all founders. To motivate the empirical analysis we develop a simple theory of costly bargaining, where founders trade off the simplicity of accepting an equal split, with the costs of negotiating a differentiated allocation of founder equity. We test the predictions of the theory on a proprietary dataset comprised of 1,476 founders in 511 entrepreneurial ventures. The empirical analysis consists of three main steps. First we consider determinants of equal splitting. We identify three founder characteristics -idea generation, prior entrepreneurial experience and founder capital contributions - regarding which greater team heterogeneity reduces the likelihood of equal splitting. Second, we show that these same founder characteristics also significantly affect the share premium in teams that split the equity unequally. Third, we show that equal splitting is associated with lower pre-money valuations in first financing rounds. Further econometric tests suggest that, as predicted by the theory, this effect is driven by unobservable heterogeneity, and it is more pronounced in teams that make quick decisions about founder share allocations. In addition we perform some counterfactual calculations that estimate the amount of money 'left on the table' by stronger founders who agree to an equal split. We estimate that the value at stake is approximately 10% of the firm equity, 25% of the average founder stake, or $450K in net present value."
"The first real deal in an entrepreneurial venture typically consists of founders agreeing to a division of founder equity. We use hand-collected survey data on the process by which founders reach an agreement, as well as their decisions on how to split the equity. We consider the relationship between founder agreements and venture performance, as measured by employment growth and the receipt of venture capital. Teams that settle the equity division at the outset, teams that negotiate the agreement quickly, and teams that divide the equity equally, all experience lower performance. Teams that combine these three practices have the lowest performance. The results suggest that the division of founder equity, and the process by which the founders reach the agreement, provide a first signal about the likely future path of the entrepreneurial venture."
"This paper examines the division of founder shares in entrepreneurial ventures, focusing on the decision of whether or not to divide the shares equally among all founders. To motivate the empirical analysis we develop a simple theory of costly bargaining, where founders trade off the simplicity of accepting an equal split, with the costs of negotiating a differentiated allocation of founder equity. We test the predictions of the theory on a proprietary dataset comprised of 1,476 founders in 511 entrepreneurial ventures. The empirical analysis consists of three main steps. First we consider determinants of equal splitting. We identify three founder characteristics -- idea generation, prior entrepreneurial experience and founder capital contributions -- regarding which greater team heterogeneity reduces the likelihood of equal splitting. Second, we show that these same founder characteristics also significantly affect the share premium in teams that split the equity unequally. Third, we show that equal splitting is associated with lower pre-money valuations in first financing rounds. Further econometric tests suggest that, as predicted by the theory, this effect is driven by unobservable heterogeneity, and it is more pronounced in teams that make quick decisions about founder share allocations. In addition we perform some counterfactual calculations that estimate the amount of money "left on the table" by stronger founders who agree to an equal split. We estimate that the value at stake is approximately 10% of the firm equity, 25% of the average founder stake, or $450K in net present value."@en

name

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"The First Deal The Division of Founder Equity in New Ventures"
"The first deal the division of founder equity in new ventures"@en
"The First Deal the Division of Founder Equity in New Ventures"@en
"The First Deal : the Division of Founder Equity in New Ventures"
"The First Deal : The Division of Founder Equity in New Ventures"
"The first deal : the division of founder equity in new ventures"
"The first deal : the division of founder equity in new ventures"

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