The Most Expensive Equity Doesn't go to Investors

The Most Expensive Equity Doesn't go to Investors

From Startup Therapy by Startups.com

June 1, 2026 · 46 min · Episode 334

About this episode

The episode discusses the complexities and pitfalls of equity distribution among founders, investors, and employees, emphasizing the long-term implications of giving away equity.

Why do founders fight over giving an investor 15% but hand out huge chunks to co-founders, employees, and advisors with far less certainty of return? The episode argues that investor dilution is often the cleanest trade because cash and terms are clear, while “everyone else pays in maybes and promises.” It warns that early-stage equity feels worthless but represents 100% of a company’s future value, so giving away 50% to a near-stranger can become a permanent cap table problem that also costs speed, optionality, and sanity. Practical fixes include vesting, cliffs, tying equity to real value creation, defining what happens if someone stops contributing, and putting breakup terms in writing early. The discussion also critiques employee equity as time-based rather than performance-based, and advisor equity as often unaccountable, where tiny percentages can hide very expensive outcomes. What to listen for: 00:00 Investor vs Founder Equity 01:26 Equity Is Priceless 03:43 Co-Founder Split Hangover 06:04 Why People Underperform 11:15 Fairness Turns To Resentment 12:44 Will's Unsubscribe Story 15:53 Vesting And Breakup Terms 18:17 Early Employees Option Pool 20:26 Equity As Compensation…

Topics covered

  • equity distribution
  • founder challenges
  • investor relations
  • employee compensation
  • advisor equity

Keywords

  • equity
  • founders
  • investors
  • compensation
  • advisors
  • vesting
  • cap table

Mentioned in this episode

Organizations: Startups.com

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