Tangential question: How do founders typically retain control of their company? I've specifically been told that it's wise for one person to own 51pct of the company and be CEO. However, with 20 pct of equity for investors and 10 reserved for future employees, this doesn't seem to leave much for cofounders who are potentially putting as much skin in the game as the CEO.
Historically, when this has happened, it's because the founders have managed to build the product & get on the growth trajectory before taking investment. Bill Gates built Altair Basic, sold it to hobbyists, and reinvested the profits to buy MS-DOS and sell it to IBM. Larry & Sergey had a working search engine that was using up half of Stanford's bandwidth before they took their first angel investment. Facebook was a dorm-room project. SnapChat was a final project for a Stanford product-design course and had 100k users before it took investment. The Apple 1 was done in Steve Wozniak's nights & weekends, and had sold out before they took investment for the Apple 2.
If you have a working product and ideally money coming in, the early negotiation leverage changes dramatically. You can skip the seed round entirely, because you've already seeded the project. You can usually get a very good valuation on Series A, since your metrics look great and every VC wants a piece of you. You can negotiate to give away very low equity stakes in later rounds, since at that point you seem like a sure thing.
The flip side is that most side projects don't go anywhere. You need to be both very dedicated and very lucky to strike it big without investment.
That would only happen when you have a line of investors waiting to invest and you can dictate the terms because of your high growth trajectory. In most cases though, it's not going to happen because of the standard numbers outlined in the article.
You're assuming that all equity is equal. It isn't. For example, shares given to employees are often non-voting. A company could have 99.99% of the equity in non-voting stock, meaning whoever holds the 0.01% that have voting rights controls the company.
When it comes to shares "ownership" does not directly correlate with "control".
From what I've read, from former ycombinator founders, that if one person isn't in charge then people get stuck in decision paralysis. And that for instance if three people are equal partners, its always a game of alliances and two people ganging up against the other one.
You are conflating ownership and the role of a CEO. Technically the CEO does not have to hold equity at all (and this is in fact common in many older family owned companies).
Decision paralysis is more a function of not having a clear path forward or having founders without aligned goals than anything else and those are serious problems that need to be dealt with but they do not need to be dealt with on an equity level.
It's much more to do with knowing which role fits you best.
Keep in mind that the CEO functions at the pleasure of the board if you have one and the stockholders if you do not and unless you plan on doing stuff that will go directly against the interest of other shareholders having control is rarely if ever important.
Far more important than the CEO having a controlling percentage of the equity is that the founders have a controlling percentage (and if possible, a supermajority depending on your articles of incorporation and shareholder agreements and whether or not you have more than one class of stock).
