Seth has a post about how to start a conversation about dividing ownership shares
So, my best advice is to say, "Today, right now, your contribution is worth 5% of the company and my creation of the company is worth 5%. The other 90% is based on what each of us does over the next 18 months.
The advice offers a good starting point. The gentile nature of the discussion is interrupted by ownership bias. The person providing the capital values their input very highly relative to other contributors. The person providing the sweat equity values their input highly relative to other contributors. Any future partner providing capital also values their input higher relative to all others in the organization.
All are correct of course. The creation of the idea has a value, the original capital has a value, working for the enterprise has a value and subsequent capital has a value. The situation is usually handled with a even split (if 2 people-50% split) in the initial capitalization, a generic list of which tasks need to be handled by which partner and an opportunity to buy into future capitalization's. If the enterprise is a success no one is ever happy with their share of the profits. If the enterprise fails each partner blames everyone else for the failure.
The incremental ownership percentages that Seth advances are a valuable starting point for the discussion. Bringing up questions and having a binding arbitrator offers valuable pressure values in the business relationship. Entrepreneurs when they start a business rarely think of an exit strategy. Asking and resolving questions up front saves a lot of energy down the road.
