Equity owned by someone who no longer contributes meaningful value. Departed co-founders, inactive advisors, or former employees. It creates resentment, limits your ability to incentivize current contributors, and can scare off investors.
Why it matters
Dead equity is one of the most common reasons startups fail or can't raise funding. It demoralizes active contributors who see inactive shareholders holding the same or larger stakes. It blocks new hires because there's nothing meaningful left to offer. And it scares investors during due diligence.
How it works
Dead equity typically appears when a co-founder leaves early but keeps their shares, when an advisor gets equity without delivering, or when equal splits are made without vesting so departed founders retain ownership. Prevention is straightforward: use vesting with a cliff, track contributions, and set minimum thresholds. If you already have dead equity, restructuring options include buybacks, renegotiations, or converting to a dynamic model. The earlier you address it, the easier the conversation.
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