Focal

1/4 two‑founder teams is divorced by Year 4; 40  % by Year 8.

Dead equity on the cap table is silent - until it strangles the company and the friendships that built it.

It kills morale, makes fundraising way tougher, and leads to strong resentment amongst the founders who stay.

“Why sprint so hard every day when the passive passenger in row 38 owns as much of the business as I do?”

It doesn’t have to be this way.

The best way to avoid the fallout is to deal with it at the very start.

It’s easiest to make decisions while you’re all still friends and the startup isn’t worth much (anything) yet.

Three safeguards to keep your equity “alive”:

Longer vesting periods: 5 year vesting for anyone who owns above 3%, 6 year vesting for anyone above 5%. This aligns everyone’s incentives with the long term goals of the company. I HIGHLY recommend doing this.
Two year cliffs for co-founders: Most breakups happen in the first two years - a two year cliff for anything above say 1% could resolve a lot of issues later on.
Handshake agreement: It’s hard / not common to have legal buy backs rights if a co-founder leaves. Yet a clear agreement amongst co-founders that they will sell e.g. anything above 5% into future financing rounds (at the common valuation) should they leave can go a long way.

Everyone thinks that they’re not at risk because they’re such good friends when they get started.

The numbers tell a different story. Chances are you’re amongst those that get divorced.

Set yourself up the right way during the honeymoon phase.

Or you’ll regret it later.

Enjoyed reading this?

Then check out my conversation on the focal podcast with Duncan Weatherston, Co-Founder and CEO of Smile Digital Health - a business that bootstrapped to $10M ARR and has >$50M ARR with $50M raised today.

Recently started a company or thinking about it?

At focal, we’re technical, AI native builders’ first choice for their first check.

We lead their first round at the very start with up to $1M. Often before they even write their first line of code.

Avoid dead equity at all cost