And now about something completely different. Imagine. At some point in your life you decide you would like to settle down. You download a super tool: the AI powered NLP backed seamless app to answer your most pressing and sensitive questions like: who is the right partner for you? should you have children? Where should you live? Who does the dishes? Etc. etc. 

Wouldn’t that be great? Well. Maybe it would work, or maybe it wouldn't - who can say? The fact of today is - IT DOESN'T. And the same applies for automatic equity split calculators. 

What are automatic equity split calculators?

More or less sophisticated tools, from downloadable DIY Excel sheets to web based questionnaires, that promise to give you the right answer on how to split equity with your cofounders. 

Why you should be very careful how and when you use them?

# 1: input shortcut: In order to give the tools the right inputs, you need to go through a number of right steps with your cofounding team first. Based on my work with 500+ cofounding teams by now, I will strongly argue that equity split is one of the last steps and should be the RESULT of how the team is set up, past and future contributions, cofounder role allocation and risks borne by the cofounders. 

#2: limited contributions focus: The input criteria are typically focusing on the roles of the founders, who had the business idea (typically overvalued) and capital contributions only. In many early stage startups there are other contributions that cofounders typically bring to the table - from pre-existing IP, to time, to use of available fixed assets to name just a few. 

#3: heavy industry dependency: Depending on who built the calculator, with the same test case scenario I get very different results - different roles and skills are differently valued according to what type of startup you are building. Which is not necessarily correct anyway if you ask me (but that’s another topic!). 

By all means it might serve as a useful tool for scenario testing but please do not succumb into relying on its ‘scientific’ feel or ‘methodology’. There are better ways to get the equity conversation started and ones that also help you to:

a) Have the relevant conversations with your cofounders which your equity split should be based on, and

b) Have a transparent and clear methodology everyone understands. 

Check the slicing pie retrofit & forecast tools. 

And if you come across any equity split calculator or methodology that does not suffer from the weak spots I mention - please do let me know!