Co-Founders vs. Founding Team Members: The difference is in both Equity and Expectations.

Some early contributors to a startup can be considered “founding team members” but not everyone is a Founder. Founders are the core set of people who are necessary for the business to succeed and fundamentally committed to pursuing that success for the next 6-10 years. When founding team members are confused for Founders it creates a source of internal conflict as well as friction with future investors, advisors, and team members.

TLDR: Define roles and commitment levels before discussing equity. Founders work full-time and commit for years—justifying larger ownership stakes. Valuable part-time contributors deserve equity too, but at levels that match their actual commitment. Set these expectations upfront to avoid conflicts and investor questions later.

The Key Differences Between a Co-Founder and a Founding Team Member. 

When a company is started, there’s often a person or two who are the driving force. They are shouldering the majority of the risk by forgoing a full-time job and contributing capital from their personal savings and personal network. They’re working full-time, often more, and working hard to get the enterprise off the ground.

This person(s) nearly always ends up needing help. And, often, the help they find at the beginning can’t justify leaving their job to pursue a startup—after all, there’s no cash to pay them yet! So, what’s available to incentivize them to help? Equity in an idea they believe can turn into a great business with the help of their contribution.

At this point, many founders will make the mistake of automatically considering the person with the necessary skillset a—capital F—Founder. They may offer an outsized equity grant without considering whether the new team member is willing or able to make the type of extraordinary commitment that justifies significant ownership in the startup.

This equity grant sets the precedent for negotiations with future team members. The Founder may end up granting additional significant chunks of ownership, or struggling with convincing new contributors.

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What do investors look for in early contributor equity?

When the original Founder begins approaching investors they get hammered with questions about why part-time contributors own such a large percentage of the company. It’s not an easy story to tell, making the investors question the CEOs ability to lead and grow a team. The already near impossible task of fundraising just got harder.

It’s tough! Convincing someone to do nights and weekends work on your nascent idea is a challenge all its own. Follow that up with being exacting on equity can feel like a real buzzkill. That’s why having your ownership stack well realized before courting talent is important. Grant equity commensurate for the role they’ll be filling now, and make it clear if it turns into something more later you can always consider more.

That’s exactly where our free Co-founder Equity Split tool helps. It walks through contribution levels objectively, so you can have the conversation based on clear criteria rather than gut feelings. You can even work through it together with potential team members.

For situations that are already half-executed or need more nuanced guidance, Mission Control’s Office Hours and workshops help you navigate these decisions like an experienced founder, avoiding the equity missteps that make fundraising unnecessarily difficult.

Already have your team in place and wondering how your cap table looks to outsiders? Our free Corporate Diligence Report evaluates your current equity structure and highlights any red flags that might raise questions with investors. Better to spot these issues now than during a funding round.

Best of luck to you and your founding team, whatever the composition.