The First Deal: The Division of Founder Equity in New Ventures

We examine the trade-off between efficiency and equality within the context of entrepreneurial founding teams. Using a formal theory where founders may have preferences over relative outcomes, we derive predictions about the antecedents and consequences of dividing equity equally amongst all founders. Using proprietary survey data we empirically test the predictions. Our central finding is that teams that split equity equally are less likely to raise funds from outside investors. The relationship appears not to be causal, but instead driven by selection effects across heterogeneous teams with varying degrees of inequality aversion.