We tried to assign value to what each person brought to the company so we could distribute the equity in a fair manner. Since there were disparities in the investment, and since I was only able to commit to being involved for a year, the equity was divided unequally.

At first this seemed fair, since it rewarded the people who could give the company more. The problem with this was that it was done at a time before we had worked for our company at all, and we assigned value badly. The money that was being invested played an unreasonably large role in that negotiation, and the time and effort that we would all contribute were severely undervalued.

This uneven distribution of equity problem developed quickly. It became clear that the person with the most equity did not share my opinion that that only reflected his investment and commitment, but felt that it also indicated his greater value to the company and that it implied that he should have more control than the rest of the founders.

The partner who received the smallest equity share felt that it was an unfair statement about his contribution. After a while he became very unhappy with that situation and started to push for a greater share of the company.

This situation quickly became contentous. The largest share holder (represented by the fellow on the left in the picture) felt that he was the most important individual in the company and this is why he had the largest share. He became more and more vocal about this over time, which did not endear him to me or especially my other partner (the individual on the right).

Eventually we were forced to admit that we had to settle this problem. It was difficult to make time for it, since we were trying to get our company running so we could make some money. But by this time these two partners were not talking at all. They would yell at each other when they were both in at the same time. It was hard to ignore how bad things had become.

Or course this was impossible to fix. There was no possibility of lefty and righty working together in a small company. The only possibilities were to dissolve the company or for some partners to buy out the others.

This is what eventually happened, and I got off easy with only 5 months of misery working out the deal. As far as I know the other two partners are still fighting it out more than a year after we decided on a buyout.

I think we made a lot of mistakes, but the most obvious was the unequal distribution of equity among the founders. It is easy to overlook the amount of effort you put in to a start up company before it is formed. It is also easy to give up some equity when you are talking about more than 10 percent of a company, and it isn't worth anything yet.

I think that if people are going to work together in this kind of environment, they have to work as equals unless there is a clear and universal agreement that there is a hierarchy. In our case implied but not stated judgements about value created a weakness in our partnership.