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Y Combinator - How Much Equity to Give Your Cofounder - Michael Seibel

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Author: Y Combinator
Categories: Business Psychology
Tags: business, psychology
Views: 2 · Last viewed: 2026-10-15 07:48 UTC

Short Summary

Main recommendation: Give cofounders generous equity chosen to maximize their long-term motivation, not equity negotiated as a fair-sounding split. Standard four-year vesting with a one-year cliff protects the company if a cofounder leaves early, so the risk of being generous is limited.

Key Points

  • The equity split should be designed to keep cofounders motivated through the many years it takes to build a large company, when they may not yet understand the time commitment required.
  • A common founder mistake is treating the split as whatever was negotiated; the CEO's first question should be what split best motivates teammates.
  • Four-year vesting plus a one-year cliff is the main safety mechanism: someone who leaves or is fired within the first year gets no equity.
  • Because the cliff limits downside, generosity usually benefits the company more than stinginess does.
  • Equal splits are a useful rule of thumb, but they cannot always be applied, and the speaker does not prescribe a specific split.

Details Worth Noting

  • Concrete instructions:
    • Do not treat negotiation as the basis for the split. Start by asking what split will maximize each cofounder's motivation.
    • Set equity with four-year vesting and a one-year cliff for founders, as is typical for anyone receiving equity in the company.
    • Judge whether a cofounder is worth a generous grant. If you do not expect to need them in the long term, the speaker suggests reconsidering whether they should be a cofounder at all.
  • The one-year cliff acts as a "get out of jail free card": if a cofounder choice was wrong, correcting it within one year causes no long-term harm to the company.
  • The speaker wants cofounders to feel like true owners, motivated to work nights and weekends and recruit friends, rather than needing daily motivation from the CEO.
  • The speaker notes that the specific split that produces this motivation is not prescribed and depends on the team.

Bottom Line

Equity is a motivation tool first and a negotiation outcome second, and vesting with a one-year cliff lets founders be generous without much risk.