Startup Share Fair Distibution Protocol

Many friends have asked me multiple times about startup share distribution and the formula for dividing shares among founders and investors. I have decided to publicly share the answer to address this recurring question.

In my opinion, there is no definitive way to divide shares, except to keep it simple, transparent, and fair. Those who contribute more should receive more. Those who contribute more at present should receive a larger share. However, if individuals begin to slack off during the company's evolution, it is fair to distribute the shares to those who are capable and can provide greater value.

In the end, having 1% of 1,000,000 is more valuable than having 100% of 10,000, as the former offers a broader network for future growth.

In the past, at SmallWorld, we distributed shares upfront based on what individuals were entitled to. However, we learned that this approach generated jealousy and unfair feelings among those who received shares but lacked the time or ability to contribute to results.

Currently, we practice share options where individuals and the entire team receive shares up to a certain percentage if they work for a specified number of years and achieve specific progress for the company. Share distribution is divided into three groups: Founding Team, Early Team, and Investors for seed rounds A and B.

During the first 2-5 years, we ensure a clear-cut distribution to prevent dilution and to support the team and early investors. Specifically at SmallWorld Internal Venture Building, we allocate shares as follows:

  • 35% to Founders/Founding Team for their commitment, time, energy, and skills

  • 10% for Early Team Members for their skills, time, and commitment

  • Up to 35% for SmallWorld for providing seed funding and foundational support

The remaining percentage is reserved for early outside investors, ideally raising at least two rounds of funding. Once this percentage is sold off, subsequent rounds of funding will lead to proportional dilution.

We have found that this approach provides a clearer path for the team, fostering motivation and incentives to build a successful organization they believe in and love.

Please note that this is not the only way to distribute shares. It is one of the methods we employ at SmallWorld, as we continue to learn and strive for fairness and transparency.

We believe in rewarding those who work hard to create value for the company, regardless of when they joined. Conversely, individuals who join early but only stick around to benefit from potential success should receive less or have their involvement paused if they hinder the organization's progress. While it may sound harsh, it is an undeniable reality.

I hope this explanation is helpful. If you have further questions, please feel free to ask on our Telegram channel.