It’s equity that results in outsized outcomes from starting companies, but giving away sizable amounts of equity to co-founders might be a smart strategy for founders and CEOs.
Michael Seibel, Partner Emeritus at Y Combinator — the legendary startup accelerator behind Airbnb, Stripe, and Dropbox — has a counterintuitive but practical take on one of the most fraught decisions early-stage founders make: how much equity to give a co-founder. His advice, in short, is to err on the side of generosity. The equity isn’t a giveaway — it’s infrastructure. It’s what keeps a co-founder in the fight when the company is struggling, which, as Seibel points out, is almost inevitable.
“It probably benefits you more often than not to be more generous with the equity that you give your co-founders, not less,” Seibel says. “Understanding that that equity is going to create long-term motivation to stick with your startup, especially during the times when your startup’s not working well. And almost every startup has times where things are not going well.”
For Seibel, the framing matters as much as the number. A CEO shouldn’t think of co-founder equity purely as a cost — something to be minimised to preserve their own stake. They should think of it as a motivational contract: a standing reason for a co-founder to stay committed without needing to be managed or persuaded.
“Really what you have to think for as a CEO is, ‘I don’t want to create a situation where I have to motivate my co-founders every day,'” Seibel says. “‘I want their equity stake in this company to be the thing that gets them to wake up in the middle of the night, that gets them to work on the weekends, that gets them to work late, that gets them to recruit their friends, that gets them to feel like they are true owners of the company and not just employees.'”
The distinction Seibel draws between “true owners” and “employees” is pointed. A co-founder who feels like an employee — regardless of their title — will behave like one. They’ll clock out when things get hard. They’ll stop going above and beyond the moment the cost-benefit calculation shifts against them. But a co-founder with a meaningful equity stake has skin in the game in a way that no salary, title, or pep talk can replicate.
The implications of getting this wrong show up clearly in the startup world. Co-founder departures are among the most disruptive events a young company can face — and they often happen precisely at the moments when cohesion matters most. Swiggy recently lost co-founder Nandan Reddy, who stepped down from his executive role and board seat to start his own venture — a reminder that even battle-tested founding teams are not immune to attrition. His departure came years after Swiggy had navigated a brutal shakeout in food tech, the kind of period Seibel is specifically referring to. Meanwhile, xAI has seen half its original founding team depart, raising questions about the long-term cohesion of Elon Musk’s AI venture. The OpenAI saga offers perhaps the most dramatic example of what misaligned equity and ownership dynamics can produce: Sam Altman had no equity in OpenAI when he led it to become the fastest-growing product in history, a situation even he later said he wished had been different.
Seibel’s advice doesn’t make co-founder equity splits simple — they never are. But it does reframe the question. Instead of asking “how little can I give?”, a founder should be asking “how much will make this person feel like a genuine owner?” That shift in mindset, coming from one of Silicon Valley’s most experienced startup evaluators, is worth taking seriously.