How should co-founders divide equity - and what happens to those shares if one person leaves?
In Part 1 of my conversation with Phil Hails-Smith, Managing Partner at Joelson, we unpack the ownership decisions that founders building consumer and CPG brands need to make long before an investment round or exit. (This conversation was soo jam-packed with value that we had to split it in to two!)
Joelson B Corp is the leading commercial law firm specialising in helping founders of scaling consumer brands. The're the law firm that advised the innocent founders on their landmark sale to Coca-Cola (and still work with them at JamJar Investments today, which tells you something...). They also work with brands like Little Moons, Trip, Eat Natural, Bear Graze and Pulsin, and are always present at every industry event, chatting to everyone, with smiling faces and ready to help.
In this episode, Phil shares practical benchmarks rather than vague principles: why a 50:50 co-founder split is relatively unusual, when 60:40 or 70:30 may be more appropriate, how vesting can prevent dead equity, and why both founders may need to be subject to the same provisions.
We also explore all the questions you might have around advisor equity, employee option pools, EMI options and the hidden dilution founders can absorb when investors negotiate on a fully diluted basis.
What You’ll Learn
- How to decide between a 50:50, 60:40 or 70:30 co-founder split.
- Why founder shares may need to vest over three or four years.
- What “dead equity” means and why future investors dislike it.
- How much equity an advisor or instrumental early employee might receive.
- How employee option pools can dilute the founding team during a fundraise.
Key Topics Discussed
- Assessing each founder’s original idea, commitment and financial risk
- Why equal equity is not always the fairest structure
- Planning for illness, parental leave or a founder leaving the company
- Good-leaver and bad-leaver provisions
- Founder vesting schedules
- Preventing dead equity
- Why vesting should generally be balanced between co-founders
- Using AI to create co-founder agreements
- Why AI cannot identify questions founders do not know to ask
- The risk of US legal assumptions appearing in UK agreements
- Typical advisor equity of approximately 1% to 2.5%
- Why 5% or 7.5% may be excessive for an advisor
- Founder control at 75%, 50% and 30% ownership
- Creating a 15% to 20% employee option pool
- Understanding fully diluted valuations
- Who absorbs option-pool dilution during an investment round
- EMI options and tax-efficient employee incentives
- Giving meaningful equity to instrumental early employees
Useful links
https://joelsonlaw.com/
https://www.linkedin.com/company/joelson-law/
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*** Thanks to Brand Growth Heroes’ podcast sponsor - Joelson, the commercial law firm ***
Scaling CPG business also brings legal complexities that can make or break your growth journey - from contracts and regulatory compliance to protecting your intellectual property - that's why we’re proud to partner with Joelson, the leading commercial law firm specialising in helping founders of scaling consumer brands.
Joelson is offering a FREE LEGAL CONSULTATION to all BGH listeners (mailto:hello@joelsonlaw.com) - we highly recommend you take them up on it!
Credits
Thanks to our Sound Engineer Gyp Buggane at Ballagroove.com and the entire BGH team
