Founder Equity Ownership Differences and Their Effect on Startup Financial Performance

Abstract

Empirical research has highlighted the relationship between the decision to split equity equally among startup founders and subsequent financial and team dynamics. However, less is known about how the magnitude of equity inequality among founders influences startup performance. This study examines the relationship between founder equity ownership differences and their effect on financial performance in startups. Using regression analysis on data from the Belgian startup ecosystem, this study examines whether equity inequality at founding follows a non-linear relationship with financial outcomes, suggesting that moderate differences are associated with better performance. Return on Assets (RoA) is used as a proxy for financial performance, and the analysis includes both equal splits and varying levels of ownership inequality. The findings suggest a non-linear relationship in which large ownership differences are associated with significantly worse financial performance compared to equal-split firms, while small to moderate differences show a weaker and statistically inconclusive effect. These results indicate that extreme inequality may lead to misalignment, reduced team identification, and diminished financial performance. In contrast, although moderate inequality may mitigate some negative effects, it does not clearly outperform equal splits.