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In the middle of raising my first $1M, I found out that my co-founder had not issued equity in our company to me. I had to pay $200k out of pocket.

In the middle of raising my first $1M, I found out that my co-founder had not issued equity in our company to me. I had to pay $200k out of pocket.

Kristina Subbotina
February 8, 2025
•
5 min read
Founder Equity
Startup Equity
Startups

Real story:

A startup founder used Stripe Atlas to incorporate and issue founder equity. The CEO co-founder forgot to issue shares to his co-founder and instead entered into a founder agreement and “issued” shares to him via Carta. WRONG! Having a founder agreement doesn't mean you have founder equity. And Carta does not issue equity—it’s a cap table management tool that allows you to record stock issuances.

What you actually need to issue founder equity:

  1. Board consent approving the stock issuance
  2. A stock purchase agreement between the founder and the company
  3. An assignment agreement to assign past intellectual property (IP) to the company, and a confidentiality and IP assignment agreement to assign any future IP to the startup

Founder agreements are not a good idea for early-stage startups because:

1) They create unnecessary complexity. Stock issuance documents already cover key terms; you can include all necessary protections (vesting, transfer restrictions, etc.) directly in the stock documents, making a separate agreement redundant.

2) They don’t provide real ownership. A founder agreement doesn’t grant equity; it just outlines intentions, which can lead to disputes later.

3) They can cause misalignment. If equity isn’t formally issued, founders might misunderstand their rights, leading to conflicts over ownership and control.

4) Investors prefer clean cap tables. Founder agreements don’t show up on the cap table, but they can create confusion and legal risks during due diligence.

Instead of using founder agreements, startups should issue equity directly with all the necessary terms baked into the stock issuance documents.

If you're preparing for fundraising, grab this free investor due diligence checklist to make sure your legal is in order.

If you’d rather have it done for you—and fix any gaps to ensure you're fully ready for investor due diligence—check out our Startup Due Diligence Package.

P.S.: Not legal advice—I’m a lawyer, but not yours (yet).

Founder Equity
Startup Equity
Startups