How to divide shares in a startup?

Occasionally people ask about how to divide shares in a startup. And many startups I see are partnerships between 2 or sometimes 3 people.

Firstly you have to consider the longer term trajectory of your firm. If you are going to be raising capital from investors, you have to imagine multiple rounds of financing, and how the pie is going to be adjusted each time. Many a founder in Silicon Valley is shocked to find out that after five years when the company is going gangbusters they have been shown the door, and their stock position is small after one too many "trips to the well" as they call it. The reason VC's are billionaires and the founders are usually not, is because founders are notorious for underestimating how much money they need, and how long it will take to get off the runway.

I suggest you use a contractor to do the bookkeeping, and have you both get the same reports, so that you have confidence that things are equal.

The success of a partnership boils to a measurement of integrity. Without completely honest people, partnerships fail, because one will be tempted to screw the other guy. See the movie "war dogs" for an example, or watch the "Social Network" movie to see a recreation of how Zuckerberg screwed people left and right. When a duo complements each other, and is completely trustworthy, you see the biggest successes of all (Walt & Roy Disney, Hewlett and Packard). Not many people are aware of how instrumental Roy Disney was to the success of the Walt Disney company. Walt had a fantastic imagination, envisioning expensive projects that were decades ahead of anyone else, and Roy did all the money raising and money minding, freeing up Walt to pump out great stuff. If Walt had to count paper clips, he would have never been able to accomplish what he did. In the case of Disney there was a creative partner paired with a communicator/salesman partner. I would have a 3rd person you trust who knows both of you, look over your prospective team-up, and ask them if when stranded in a rowboat together and getting hungry after a few days, would you try to eat each other... ;->

Partnerships don't work well most of the time because integrity is not an abundant quantity on earth; like gold is occurs in small pockets. Every single person has a pain threshold above which they will lie, cheat, steal to survive, so the question is not do you have a limit, but how low is your partner (and your own) integrity level. If they are stealing sugar packets from a restaurant, you know the answer right there.

So a complementary partnership is a rocketship to the moon, but only if the integrity of the two is like a rock. Not many people are that trustworthy. You start to get make big money, and soon the sales guy thinks that he is more important because all you do is occasionally invent something, the power dynamics shift, and then the creative guys end up in a dingy office and the salesmen are bleeding the company with putting their expensive first class travel on the company tab. If you travel the world and do business around the world like I have, you will discover the only thing that determines the wealth of a nation is their level of integrity; high integrity equals a rich country, and low integrity means poverty, regardless of resources.