Founders and Allocation of Shares

I found myself trying to explain, in detail, how startups allocate shares and on what basis. My common answer is “who risks the most, gets the most” but below that, how do you technically set up allocation of shares? Since I’ve only done this on one of my startups, I’m clearly not a go-to person to answer any of this. There are several investors out there that strive to be as transparent as possible. @FredWilson@jason, @davidcohen, and @bfeld being the top four resources in my opinion.

I was looking for guidance on how to authorize shares, and then the mechanism to issue a specified percentage of shares to the founders. I also wanted to better understand what the non-obvious effects are to the founders down the road when it comes to issuing or authorizing more shares, or an equity event occurs. What I found was this post from Fred Wilson (the link to answers.onstartups no longer works, here’s another link to the post by Joel Sposky that Fred refers to.)

If you need guidance on how to handle giving equity to advisers, Jason Calacanis has a pretty detailed rundown here.

If you do issue shares that have restrictions (such as a cliff, vesting, etc) you have 30 days to file your 83(b) election to the IRS. The topic is covered in Do More Faster by David Cohen and Brad Feld. There’s an in-depth discussion of it here.