Equity should vest over time, meaning co-founders earn their shares gradually, and cliffs ensure they must stay for a minimum period to receive any equity.

Typically, equity is subject to four-year vesting, meaning co-founders must work for four years to fully earn their equity stake, along with a one-year cliff where no equity is earned if they leave or are fired within the first year. Vesting with a one-year cliff acts as a safety mechanism, allowing you to correct any poor decisions about co-founders without long-term harm to the company.

Vesting is crucial for founders because it prevents a situation where a founder leaves the company and takes a significant portion of equity with them, which would be unfair to the remaining founders.

Vesting aligns incentives among founders, ensuring they all work together to grow the company before any of them can benefit from their equity.

Implementing vesting and cliffs protects the cap table and allows for smoother transitions if a co-founder needs to leave.

If you don't establish vesting for co-founders, a fallout can lead to dead weight on your equity table, making it hard to attract investors.

I advise being generous with co-founder equity to motivate for the long term and to protect oneself in the process. Performance-based equity is a bad idea because it's difficult to set clear goals at the beginning of a tech startup, and those goals often change as the company pivots.

Equity splits should maximize the motivation of your co-founders to stay committed to the company over the long term.

Being generous with co-founder equity is crucial because co-founders provide the initial energy and activation needed for the company to succeed, especially in the early years.