How to Split Equity with Cofounders - the Only Way That is Fair | Slicing Pie

The Graduate Students in Electrical Engineering at Stanford University hosted Mike Moyer, author of Slicing Pie and inventor of the Grunt Fund-- a method for determining a perfectly fair equity split in bootstrapped startups.
About Slicing Pie
Slicing Pie is a universal, one-size-fits-all model that creates a perfectly fair equity split in an early-stage, bootstrapped start-up company. The Pie Slicer software tracks your equity split in real-time.
Slicing Pie is a universal formula for creating a perfectly fair equity split in an early-stage, bootstrapped startup. Traditional, old-fashioned equity splits are based on guesses about the future, negotiation skills, and rules-of-thumb. The Slicing Pie model is different because it's based on what participants actually contribute over time.
Features:
The online Pie Slicer application captures the contributions made by each team member and calculates each person's share in real-time.
1. The Pie Slicer follows the Slicing Pie formula
2. Keep track of what people actually contribute.
3. Manage access and monitor contributions.
4. Track direct cash investments with the Well.
5. Customize variables based on your company's policies.
6. Make due diligence a snap.
7. Handle departures fairly while protecting the interests of the company.
8. Your cap table is always fair!
Visit Website for a FREE sample of the Slicing Pie Handbook
slicingpie.com/
Overview
Slicing Pie is not complicated. It is a simple formula based on the principle that a person's % share of the equity should always be equal to that person's share of the at-risk contributions.
slicingpie.com/learn-slicing-...
Online Pie Slicer Application FREE Solo Version
thepieslicer.com/signup
Founders Startup Calculator Equity:
slicingpie.com/the-grunt-fund...
Complete Course: • An Introduction To Sli...
About The Author
Not a lawyer...an expert. Mike Moyer is the inventor of Slicing Pie. Reach out to Mike if you are still getting your head around how the Slicing Pie model works and ask specific questions about your situation.
slicingpie.com/about-mike/
mikemoyer.com/
Speak to Mike
Mike has completed over 1,000 Slicing Pie consulting calls on Clarity.fm. Click the link below to speak with Mike directly about your business.
clarity.fm/mikemoyer/
Facebook Page: / slicingpie
LinkedIn Page: / slicingpie
Twitter Page: / slicingpie
Amazon Ebook: www.amazon.com/Slicing-Pie-Co...
#slicingpie #founderequitysplits #fairfounderequitysplits #dynamicequitysplit #dynamicequity #beststartupequitysplits #startupequity #foundersequitysplits #equitysplits #startupcalculatorequity #splittingequity #founderssplittingequity #cofoundersequitysplits #foundersagreement #angelinvestments #foundersagreements #startupequitycompensation #founderspiecalculator #cofounderequity #slicingthepiebook #mikemoyerslicingpie #mikemoyer #slicingpiepdf #bestdynamicequity #bestdynamicequitysplit #founderequitycalculator #equitycalculator #pieslicer #startupequityapplication
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[@jasontomlinson618]

this man is trying his best to get this audience to react of answer, it's like a room of comatose people. He is an amazing speaker and i found this very informative and a great way to sum everything up for people who have little knowledge on this subject

[@slicingpie]

Thank you, Jason! Some audiences are more animated! :)

[@learnbahasaindonesia3361]

the room may be too cold.

[@Jediluvs2kill]

2024 still relevant and best

[@BritainRitten]

Started putting timestamps on this cuz it's so good. 0:14 - Intro (... I can fill in these later. If someone wants to provide them I'll edit this post with them) 49:04 - What about padding hours? 50:23 - Measuring value of bringing a team together 51:35 - Promotions/salary raises 52:22 - Convertible notes, deferred fees, & outgrowing the Grunt fund 54:34 - What about ideas that spur other ideas? 55:59 - Big benefit is this allows you to start working with ppl *immediately* 56:26 - Negotiating salaries/royalties 1:00:28 - Founders vs employees in this model? (A: no diff) 1:00:50 - What is market value for ppl who have a role (eg CEO/CTO) they do not currently have? 1:02:13 - When should the model start, if a bunch of ppl are working on idea go into startup? 1:02:57 - Can't VC's dictate terms? 1:03:44 - Have you done some post-analysis of founders doing it your way vs the old way? 1:04:33 - What if company starts generating actual value?

[@Regina.Clarke]

You’re amazing!

[@dr.tamararussell9150]

Great!!

[@michaelrjones0]

12:00 - Dynamic Equity Split 14:40 - Assigning Theoretical Values 15:50 - Grunt Hourly Resource Rate (GHRR) 21:45 - Relative Theoretical Values 23:10 - Cheat sheet of Theoretical Values (summary of above) 23:20 - Grunt contributions and Theoretical Base Value (TBV) 29:00 - Removing grunt from company

[@oligarh77770]

49ц2😅❤15го35-50😅зкцр😂😮к Л 1:02:57 😅🎉😅 1:02:57 😅нож. Целую одзр😂😅скачать з😮 1:02:13 🎉

[@Mello675]

Longest youtube video I’ve ever watched start to finish with a few rewinds to relisten!

[@patrickwilson6619]

This is a really excellent video as its incredibly dynamic. Start ups are constantly going through changes and it only feels right that the equity is split is dynamic. A very important video for any start up founder.

[@idrisoladimejisadiq9968]

This is an amazing approach to equity. It's the best thing I've seen so far and it makes so much sense. This way everyone gets what they deserve and they're constantly incentivized to contribute more.

[@slicingpie]

Glad you found Slicing Pie. Take a look at our new online class here: slicingpie.com/learn-slicing-pie/

[@AdamKeele]

GREAT info and perspective for anyone starting any sort of business/company. Man, there are SO many people in the brewing industry that need to see this presentation!

[@slicingpie]

Thank you! I agree completely!

[@mikemoyer]

Thanks! I'm glad you liked it!

[@akshajjois8908]

I loved this video, working on a medical startup right now!!

[@ahsanmohammed1]

Thank you. Do you have series of complete courses? Thanks. 😁

[@mikemoyer]

@@ahsanmohammed1 almost!

[@laurentius2306]

First equity negotiation Friday. Going to propose the Slicing Pie method! Thanks Mike.

[@mikemoyer]

I'm glad you found Slicing Pie! See my new video series: kzbin.info/aero/PLFUtpe59Ep-FOMHXxG245HNcDQRE-tGYc

[@prabinlamsal5125]

Amazing concept. Amazing presentation. Thanks a lot for the video.

[@slicingpie]

You are welcome!

[@ouksina9119]

Thank you Mike for this video.😍

[@mikemoyer]

You're welcome!

[@Regina.Clarke]

Saving this for sure!

[@slicingpie]

Niiice...

[@Chubbyfilm]

Amazing presentation, thanks Mike! It's been ages since I clicked on something that's longer than a Ted talk and actually stayed until the end. Very inspiring, great idea. I'm excited to see how it's implemented in real life with our start-up. Greetings from Europe.

[@mikemoyer]

Thanks! I hope you get a chance to use Slicing Pie!

[@belowavgnoob1401]

Hey Lan, any feedback? Did the system work for you

[@jonathan6th325]

Please add some feedback whenever possible, thanks!

[@magumbarobert7617]

I want to buy the book

[@maartenlmem820]

Using it in France... thanks !

[@patrickwilson6619]

This is excellent

[@surfyoutothemoon6244]

Great presentation Mike, and thanks for this video! I enjoyed watching it. A Stanford University presentation? How awesome does this make Mike, to have the opportunity to present this model at Stanford? It's amazing seeing your passion and vision for Slicing Pie. This philosophy just might be the new way the world looks at reward and incentives to their founders within a businesses.

[@akkissinger]

This presentation is so cool !!...

[@slicingpie]

Thank you

[@pauldreamchaser9783]

Thanks for this really solves my problem at this startup phase am at

[@slicingpie]

Glad to help! Please check out SlicingPie.com!

[@mascarademermelada8746]

Great talk, i'm about to start a proyect with a partner and i think this model make alot of sence, the only thing that really worries me is try to make all legal since this model is still unknown to the great mayority of lawyers and accountants.

[@Mrconcretecoatings]

Great video

[@TheFponce]

Thank you Mike, lots of useful info. Fair is fun. Unfortunately most don't play fair in the Sandbox.

[@slicingpie]

Yes, that is true. But I like to think it's because they don't know how to not that they don't want to! Slicing Pie provides the structure to be fair...

[@KhushalBadhan]

29:25 This method is skewed towards angel investor as they get more equity compared to traditional deals where they would get 10-30 % equity. When 61% being held by someone who provided money, the founders have very much less skin in the game and so the motivation to take the company to the next level. Therefore, this basically limits growth of the pie itself for the sake of "fairness".

[@slicingpie]

In the Slicing Pie model Angel investors would get a convertible note.

[@KhushalBadhan]

@@slicingpie Isn't the rich uncle an angel investor?

[@slicingpie]

@@KhushalBadhan I can see how that seems to be the case, but in this example my intent is that he is a participating Grunt and makes connections, puts things on his credit card and provides cash. In practice, an arm's length small investor would get a convertible note. If the team requires cash they should go look for it. A participant can't force the team to use their money. They can always look for lower-cost funding. If, however, there is no cash available they may have to rely on higher-cost funding

[@HominisLupis]

Mike, dunno if you read comments anymore, but this was hella insightful. I'm going to pick up the book, and I wonder if it has a section on recalcitrants that might be distrustful of this model, although I will try and get my potential co-founders to see sense by linking them to this talk. I do anticipate pushback, however...

[@slicingpie]

Sorry for the late reply! How did it go for you? See here: kzbin.info/www/bejne/iZ3Nm42XqZZ7ebM

[@gbenjamin49]

Mike, thanks for sharing the model, it's great! Quick question. Under your explanation of theoretical value for the "Idea" you mention multiplying the royalty x2. However, the slide fails to reflect this number like it does for "relationships" and "costs". Can you please clarify?

[@slicingpie]

+Gyanesh Benjamin Hi! The slide to which you are referring appears at 22:14. I forgot to include the multiplier. The Slicing Pie model uses a 2x multiplier for non-cash contributions and a 4x multiplier for cash contributions. When dealing with IP, there are a number of options. The owner of the IP can license it to the startup company for royalties on revenue. If the company does not pay cash, they can add theoretical value (I call theoretical value "slices" these days) to the model. Ideas are non cash. The owner can also fold the time and expenses of developing the IP into the company using theoretical value (slices). In this case their probably wouldn't be a royalty payment.

[@ShopperPlug]

Best video on the topic. Gets into the details of math and formula. Where can I obtain the cheat sheet?

[@mikemoyer]

Send me an email through slicingpie.com and I'll hook you up with what you need...

[@Strawbalegardens]

Terrific talk. Quick question Mike, and thanks in advance for your answer. So helpful, I just ordered your book as well. Are you doing the slices of pie calculation on a regular fixed time basis? For instance once a quarter, semi-annually, monthly or yearly? I would assume slice owners are curious about their own equity stake on a continuous basis, especially if a new equity member is brought on board. What happens if one guy only started working a year ago and works full time, but others have been working for 5 years all full time, all are unpaid equity slice owners. If we measured equity at the end of next year, are we accounting for the four previous years of unpaid equity in the formula, since a measurement of slices for unpaid salary for just the previous year would be the same for all parties? I guess my question is, is there a look-back period for the formula? Or is the formula calculated based on all contributions since conception? I hope this is clear.

[@slicingpie]

Slicing Pie tracks contributions on a rolling basis in as much granularity as you want. You should use the model until the company breaks even. After breakeven you would use a bonus plan, not the Slicing Pie model.

[@haseebahmed1981]

@@slicingpie So when you say break even, do you mean when the company starts to make profits? And do you have any books, videos about the bonus plan you referred to?

[@slicingpie]

@@haseebahmed1981 Yes, Revenue = or > Expenses (including salaries)... contact me through SlicingPie.com re the bonus program....

[@bm830810]

this was brilliant, thanks

[@mikemoyer]

You're welcome! Thanks for watching

[@TimCooley]

This was amazing. I wish I knew about it years earlier, glad I can still fix it. How does a cash infusion work that is not from an investor? For example, what if it is money awarded from competitions. Our company won $30,000 in competitions and I am not sure how to allocate that.

[@slicingpie]

Grants and competitions are free money and do not count in the Pie. They are risk-free assets. You could provide a finder's fee for the money (~5%), but, if it's a team effort I wouldn't bother. -Mike

[@TimCooley]

+Slicing Pie thanks. that was helpful

[@TimCooley]

Do you have links to legal resources to cover this system? How do 83b elections work in this format?

[@slicingpie]

Yes! slicingpie.com/silcing-pie-friendly-lawyers/ 83(b) elections are relevant when a company issues restricted shares and has a vesting program. In some cases, Slicing Pie is the vesting program: slicingpie.com/bootstrapper-equity-why-time-based-vesting-is-a-waste-of-time/

[@christophereckel]

Hello Mike, this talk, along with your book, have really helped. In my situation I'm considering cash investing and full partnership with a friend who's built his business over the past two years, and is at the point of needing help and complimentary skills. In this case do we agree to his Grunt Hourly Rate and add up all time/money/supplies/ideas invested over that two years and throw that into the starting equation in the same way contributions would be added in the future, or would previous commitments be lumped into a separate agreement such as starting from a static split then building on it in with a dynamic method?

[@mikemoyer]

Yes, this is called a Retrofit: slicingpie.com/slicing-pie-retrofitforecast-guide/

[@wintonlim3691]

Hey mike! I was wondering if the senior developer spent lots of time generating most of the code base for a startup and left with good reason , what happens to his equity over time when additional contributions are made from existing founders (either time or money or something else) . For example: If the seniors code was the crux of the company, doesnt having someone just spend lots of money on the company for advertising loweres his percentage of equity? How would you sort that out when the senior developers contributions slide towards 0% proportional to the cash contribution of others. PS .. Thanks for still responding to messages! Ive never thought I wouldve watched through 1 hour on equity etc but this was amazing!

[@PaulLadendorf]

That's a really tricky question and something I was wondering about too. Did you find any good insights?

[@FidelGuajardo]

Great presentation. Question: How do you model the value of someone who wears multiple hats? For example, the developer who occasionally goes out to sell the product or service....would the value of his contributions be based on the fair market value of those distinct skills and would his total contribution be the sum total of those separate values?

[@mikemoyer]

Pay for the primary role. For instance, if I'm the CEO of the company and I spend time responding to KZbin comments the company will get KZbin comments at the CEO rate and might want to consider hiring a social media person. In a real job you wouldn't take multiple rates depending on what you did each day. You would get one rate.

[@tobihalt7077]

That video might have saved our startup equity negotiations. 2 years too late

[@slicingpie]

Yep....we get that sentiment a lot! It's not too late for your next venture though! :^)

[@patriceken]

11:25 what we need 12:08 dynamic equity split

[@MarcPfeiffer]

For cash contributions what happens if both founders want to provide the amount? Who gets to invest the cash first? I understand in some (perhaps most) situations cash is harder to come by and so the 4x premium is there to induce cash infusions, however in a situation where both parties want to put in the cash to earn the 4x amount do you (1) Give both parties the option to allocate the amount according to their % ownership per the grunt fund or (2) you reduce the cash contribution multiplier (bidding system?) or (3) some other system?

[@mikemoyer]

There's no rule for this. But you could split the expense in a way that makes sense for your company. Equal amounts would convert to equal slices in the Pie for the cash. You can also use the Well: slicingpie.com/seed-stage-investments-and-the-well/ If one founder has controlling interest he or she would be able to dictate who gets to invest. Founders with more equal footing should split more along their current ownership of the Pie.

[@AlJahhaaf]

Thank you for this great presentation. Quick question; how could the company compensate the resigned for not good reason and the fired for good reason? And if the company want to protect the equity by 1year cliff, how to implement?

[@slicingpie]

In Slicing Pie the equity is always safe. There is no need to use time-based vesting or cliffs. There are consequences for the "at-fault" party in the event of a separation that protect the other parties' interests. I just finished writing a new book on the topic that covers this in detail: amzn.to/2dI69NQ -Mike

[@AlJahhaaf]

I've finished more than 50% of the book and it answered all of my questions. I can't thank you enough for this book you saved my startup a great deal of conflicts.

[@slicingpie]

I'm glad it helped!

[@codypatron5968]

I was watching an episode of Shark tank and this one start-up had given up some equity and Mark Cuban was saying he didn't really like that. So what is the limit on the amount of equity you should give up? Because further rounds of funding will need to be raised correct?

[@rythmahmed]

Thanks, very good way of dividing partnership, really beneficial. I have a question. In my case, I have one software engineer who will work 4 hours per day for the first 3 months. Once the software is ready, he won't need to work as much as before, may be 2 hours per week for maintenance. Sometimes he won't need to work at all if there is no problem with the software or no need for new feature. On the other hand, another partner will start working as customer manager. But he will start working only when the software is ready. Lest's say, he will work 2 hours per day. So, how to split share for the software engineer? After 3 first months he is working very less compared to the other partner, but the company is making money using his software.

[@mikemoyer]

This is precisely what Slicing Pie is for. Pick up a copy of the book (amzn.to/2DhfH0m) or download a sample from SlicingPie.com. Also, "making money" implies that the company will actually be profitable right after the software goes live. Make sure you are clear what profitable means: slicingpie.com/profit-pitfalls/ In most cases, the marketing people (which I assume is you "customer manager") should be working well before the coders begin making software...

[@rythmahmed]

Mike Moyer Thanks for the link, the detail is really helpful. I will go over the blog posts, looks promising slicingpie.com/blog/

[@rythmahmed]

Mike Moyer I have read the sample and couple of other blog posts from your website. Still I have some questions. It will be really helpful if you put some light on the following questions. 1. As you mentioned, the slices will be freezed after reaching the breaking even point. After then, everyone will get their salary. But what will happen to the slices? e.g. before reaching breaking even point, I worked equivalent to 100$, my co-founder worked for 2000$. now I am working 40 hours/week but he doesn't need to work, since there's no bug in his software. Now I am getting salary he is not getting any salary. ‎I think we can do the following in this situation: I take my salary. then we can divide the profit according to slices. But the problem is, I am getting salary because I started working after the breaking even point and he is not getting salary because he worked before! Also, I am getting both salary and share, my friend gets only share. is it fair? ‎Again, since the slices are freezed, my slice is small and my friend has a much bigger slice. he will get a huge portion of the profit even though I am running the business now. is it fair to give him so much profit? What do you suggest in this case? Or do you suggest to cash out all his slices first? ‎ 2. I am thinking that I will keep 50% of the profit to the company and will divide the rest of the money. do you think it is fair?

[@mattvike]

Hello Mike - great presentation. Currently, my startup is a side project where us two founders have day jobs, and thus are not forgoing any fair market compensation. This will change eventually, but for now it is a nights and weekends project. Because we are not FORGOING any salary or hourly rate, does this change anything in terms of the risk? I’m assuming it doesn’t make any sense to have a 2x fair market multiplier when we’re not “risking” any hours under the current circumstances. Thanks in advance for the response.

[@mikemoyer]

You are forgoing leisure hours by engaging in work hours. You should be paid a fair market salary for your work hours. If you're not getting paid (because it's a startup) then you are putting your compensation at risk. Check out Slicing Pie for more comments...

[@mattvike]

Ok, if I am understanding you correctly, it is irrelevant that neither of us have left the day job as of yet, and the 2x multiplier should still apply on our day job fair market rate? Thanks again.

[@mikemoyer]

Yes. It's a side job for which you might be paid if there was money to pay you. Nobody is in a for profit business and works for free. Imagine I asked you to work for my company 10 hours per week and I had positive cash flow. If I said, "normally I'd pay $50 an hour for this work, but since you have another full time job I won't pay anything..." You'd probably laugh in my face. -Mike

[@mattvike]

Yes, that makes perfect sense. Certainly nobody would work for free. However if I'm being honest with myself, there is no "side gig" available that would pay me anywhere near what I'm making for my day job ($50/hour), and I am comfortable saying the same for my partner. Now, if I chose to LEAVE the day job, that is certainly different and it then makes perfect sense that should be worth $100/hr. I guess this comes down to us agreeing on what the "reality" of this situation is, but it sounds to me to just keep it simple, we should continue to base it on the day job hourly rate. Thanks so much for the quick responses - this is really neat stuff...

[@mikemoyer]

If there is no demand for for your work at $50/hr, how could there be demand for your work at $100/hr? The fair market value of your work should be based on market demands and your ability to do the work. The hourly rate for the start-up job depends on the job. If the job is flipping burgers the rate would be more like $10-$15/hr. Even if a brain surgeon did the job it would still only be worth $10-$15/hr which is why most brain surgeons don't flip burgers for a living or even as a side gig. Having a full time job or not having a full time job does not change the market value of the side job. Burger flipping is worth the same no matter who is doing it (with a range). Based your fair market value on the job requirements. If the side job is similar to your day job, it might have a similar compensation structure. Most startup jobs pay less than jobs at established companies because there is less responsibility: no revenue, no customers, no employees, etc. A VP at P&G should be making a lot more than a VP at a startup, for instance. $100/hr is a $200,000/yr annual salary...seems kind of high for a startup salary. $50/hr is $100,000/yr which seems more logical. If you were to hire someone to do your side job for you and you paid their salary out of your own pocket, how much would you have to pay?

[@volaryu]

I've always started companies by myself because of the horror stories of the equal split and so little resources on how to split it fairly based on merit, this helps me changed my mind since I want to start a project with my friends. I notice there's no question there when the company actually fails and everyone decides to split, what happened? does no one gets paid since there's little to no money left? the rich uncle probably get the rest of his money back without a multilier and the rest who provided time don't get anything?

[@slicingpie]

Here is an article on that topic! slicingpie.com/equity-splits-for-failed-companies/

[@volaryu]

@@slicingpie appreciate the reply, is there a user group for slicing the pie? or maybe forum? to exchange ideas and maybe discuss the details of the method and real world usage, thank you

[@codypatron5968]

Thank you for posting these videos and Great name for the channel btw. So here is my situation. I came up with a great idea for niche sneaker brand. The niche is connected to hip-hop and has potential to be a top 5 brand. But I need to find someone to help me with all the business stuff, maybe that person could be paid in equity and a salary once we can afford it? I am not a business person and not sure I'm even close to being qualified to be a CEO. But don't want to give up the majority percentage of my company just because someone invests money. Other options are grants and debt crowdfunding so a partner wouldn't have to invest so much.

[@mikemoyer]

If you have cash you don't have to give any equity away. Just pay people. If you don't, you're going to have to give something up. Slicing Pie will help you determine the fair split. Think about it from the standpoint of risk. You're a guy with an idea. You have very little at risk. Someone comes along and gives you a bunch of cash. How does their risk compare to yours? If they have more at risk, they should expect a higher reward (equity)

[@arnolddomingo7567]

Great information. My wife started a c corporation with a partner. Supposedly 50/50 but unfortunately the partner did not put any money in the business. My husband ended up funding the business. Whats the appropriate thing has to be done?

[@slicingpie]

In the Slicing Pie Handbook there is a chapter on retrofits that will help correct the all-too-common 50/50 split debacle!

[@michellemalone1279]

Where can I get a copy of the cheat sheet ?

[@slicingpie]

Visit SlicingPie.com for a free sample of the Slicing Pie Handbook

[@user-cz2pm7dq7s]

I think if you make the pivot them somehow it sound like the idea wasn't ready yet. But id suggest you work through an idea first before you get a co founder.

[@slicingpie]

Yes. A significant pivot may actually be a whole new company and, therefore, a new Pie!

[@zeetari7379]

What if you start a company that is to open franchises of an already established franchise. One person is putting up the cash and the other(s) are going to do the pre work and then operate the franchise(s) how best to determine percentages of ownership?

[@slicingpie]

Slicing Pie works regardless of the nature of the company. It considers at-risk cotributions (unreimbursed cash, unpaid labor) as "bets" on the future outcome of the company. Each person's share of the equity is based on each person's share of the bets. Check out www.slicingpie.com to learn all about it.

[@jaraad100]

How can I contact you about implenting this methodology in my company?

[@slicingpie]

You can set up a call with me at www.clarity.fm/mikemoyer

[@KhushalBadhan]

39:15 that't not a retention program. That's a program where you do not attract good talent and people who no longer work for/with you will advice others to stay away from you.

[@jameslin7457]

what if someone take salary and reinvest to the companty as cash ? (time multiple is 2 but cash multiplier is 4, is this a loophole? )

[@mikemoyer]

This is gaming the system and doing so would be grounds for termination with cause so there's no incentive for someone to do it. Every possibility is accommodated neatly by the model.

[@kapilp5778]

Logical Execution strategies for early startups..

[@LithicMetals]

You should try to pack in a few more ads during the presentation. Really rake in those pennies!

[@mikemoyer]

How many ads showed?

[@DominicLeonMarketing]

19:16 What IS the Guy in the public asking? I cant hear anything 19:16

[@slicingpie]

He is asking if we adjust the hourly rate if someone expects to work over 2,000 hours per year....the answer is "no".... -Mike

[@DominicLeonMarketing]

Slicing Pie thanks Mr. Moyer!

[@LordMJ]

What if, you have a situation where you have one guy that is a full time founder while another guy is much more experienced and has extensive business connections that he can bring to the table but is unable to turn those connections into money until there is a working product. Full time founder works 80 hrs/week. Experienced guy works 5-10 hours a week. Assuming equal fair market salaries for the sake of simplicity, the experienced guy will get 11%. Furthermore the full time founder wants to bring in a team to work on building the product and use slicing pie for the team. Experienced guy is not willing to accept less than a 50/50 split and is not willing to have equity split with the team the full time founder wants to bring in. From the experienced guy's point of view if he is going to get only 11% or less, he's better off working on his own since he has the connections and the full time founder does not.

[@LordMJ]

An extended question, is how do you counter the argument of the guy that's working 5-10 hours a week that is well connected and is more senior (typically those people would not join a startup on a full time basis when it is in bootstrap phase) saying "I could do this on my own and get 100%. There is zero reason for me to accept a deal using Slicing Pie and get only 11%." To such a person 50/50 is a reasonable middle ground compromise and so is the idea of him having 50% while rest of the team divides up the other 50%.

[@eduardonegredo2954]

@@LordMJ 11% could be worth for the experienced guy since he only works 5 to 10 hours a week

[@alimanigobi3158]

@@LordMJ I can't say I'm in your situation but this problem has come up more times than I can count in various non business related projects. Here's what you should consider and do, spoiler all roads lead to you promptly terminating this guy. I'm not speaking out of spite for condescending arrogant people but out of concern for the business. 1. If this person is that confident that they can do it on their own then there is no reason for them to actually work with you, in their mind they are guru's of knowledge and competence but the truth is they just have a bigger ego than they are man enough to recognize. Fool with a plan is better than a genius without one. You might not have connections but that is exactly the kind of thing you should seek out ON YOUR OWN, if your really as good as you believe to the point of starting a business then you should know that establishing connections is part of the trade and something your SUPPOSED to do! The fact that your scared to fail without them means your not confident to succeed. The best tip is to learn about what that person brings to the table so you won't have to put the business at risk because of that person. You might not see it but this person clearly doesn't really care about the business as much as you because in their imagination they can do it all alone, friend let me tell you the number of people who think they know it all is directly proportional to the number of people sitting in front of the TV saying they can be president if they felt like it or they can outrun Usain bolt if they exercise for 1 week because that's how gifted they are. Don't fire them with arrogance but just tell them your incompatible and it wasn't meant to be, wish them good luck as they do it on their own. 2. Another problem with your partner is that they WILL crush your moral. The fact that you already do everything makes you their worker not their partner. Remember if your employees work hard enough and strive for excellence YOU will buy a Lamborghini. That's the same principal your partner is exploiting from you. Perhaps it was fair for you to do all the work at first because you had the skills to but after a while when the business is doing ok it's time for you to revisit the terms. Your partner even after all this time hasn't picked up on the trade and odds are your actually more valuable than them because you've been present and know what to do and also you have the very important trait of consistency, persistence and determination which you've executed daily. Whether you know it or not at this point all you really need is your partners money and nothing else. They are now just an investor. Also let me add that if you have you should sneakily add an anti dilution clause in your shareholders agreement to protect you. Offer to buy them out of the company slowly but only if you have another investor ready and since your shares can not be diluted give them an ultimatum, either he/she accepts dilution or the company runs out of cash. I want to remind you that this person keeps threatening that they can do it on their own but hasn't because they really can't, they will pull that bull with you again and this time you call their bluff, they cannot dissolve the company because you managed to buy just over 50% and have more voting power than them. Further more you should make it known in writing prior to this that since you are essentially operations manager and CEO you should have more executive power. Seems to me like like this partner is resisting dilution and yet contributes nothing but cash, they're only concern is to squeeze you of money while they do minimal work, they should equally them let you oversee all if not most of operations and also have executive power since your always present. Having executive power will allow you to accept more cash fr new investors without your partners permission and dilute them regardless. They will complain alot but after all that paperwork under your belt you'll be ok! It seems to me your only fear is losing this person's connections which I want to add again is YOUR responsibility to forge as well, it's not hard to collect phone numbers and make acquaintances if your serious. Finally pitch your business thoroughly to new invested who aren't narcissistic and get cash to keep operations going. Believe in yourself friend. This person will be toxic to you and the staff overtime because you will become constraint in cash because the lazy one isn't contributing and you are being overwhelmed by work that's not proportional to the salary and dividends, why? Your frustrations will pour into the staff simply because you want to make more for your workload all because you were afraid to upset someone who shouldn't have been pampered in the first place.

[@brigadiergeneral2399]

11% is too much if your working 80hr and a guys is working 5 that’s less then 11%. Also experiment is great but guess what Mark Zuckerberg has no experience so why is experience weighted more.

[@LordMJ]

@@alimanigobi3158 Just now seeing this. In my case I was building a tech product, and I started working with him for a specific international use case that an instance of the tech platform would be used to facilitate. The details of how everything would work as a company though was a complete firestorm. Largely because the international opportunity, the experience working in the market, and the relationships involved were all his; he refused to accept Slicing Pie. Not accepting Slicing Pie however was unworkable since not only would executing on the opportunities he facilitated be a considerable sweat equity investment on my part, and it would require an additional team, but it was also lost in the whole equity conversation that the opportunities we were working together on no matter if it ended up being a multi billion dollar opportunity would be just ONE instantiation of our product. And as the company grew and scaled, the operations around the core product would increase to such a point that his individual involvement would be a tiny piece of the equity picture. But I would say that the opportunities and his work wouldn't necessarily be worth equity. But if they were believably multi-billion dollar opportunities, that may have been a big enough value proposition for myself and a team to be willing to take the risk and bet on the opportunities by working on an equity basis. Mean that the bulk of the equity would go to myself and team, not him. So his contributions would if Slicing Pie were used correctly have a sizable impact on the equity picture, just not in the way the he saw things.

[@ryanjjones]

This is extremely simple and can be explained in tweet. Always a warning sign when someone takes an hour to explain a 2 minute idea. Pro-rate everyone’s equity based on hourly rate of each’s fair market salary. Keep track of hours and adjust equity as “contribution” (hourly rate * time) occurs through time. Done.

[@CollegePeas]

Hmmm...that's not quite it. It is pretty simple, but a little more nuanced than that. I created some summaries that can be downloaded here: slicingpie.com/slicing-pie-summaries/ The model is simple, the books cover implementation

[@ryanjones2763]

How is it more nuanced? This is time*hourly rate pro-rated split. All the "hard questions" were answered with "use easily findable comps".

[@domvinyard1133]

@@ryanjones2763 Do you watch movies or just read the synopsis. I enjoyed his framing and delivery

[@captasparagus6908]

@@ryanjones2763 He addresses losing founders in 4 scenarios.

[@noelpeberdy9253]

Ignorance is bliss

[@iamksmith]

This model doesn’t work for all businesses. It’s sounds attractive until you have the originator of the idea pushed out of his own business because he was either “less experienced” or bad “life events” going on at the time. Not ideal. This idea needs to be modified per company. For example, I am the owner of my startup and I will have more equity than anyone else so I can maintain ownership of the company. The owner/company has to hold the most equity. 2nd, in a split decision (since I have 3 other Co founders) I will be the deciding factor.

[@slicingpie]

Thanks for the comment. The model would still be fair even if someone is pushed out. Depending on the circumstances, he would still get equity. He may not like it, but it's still fair!

[@Live.Life.Restored]

What if......your partner wants 50/50, puts up capital in the beginning, doesn't do much work AND on top of that, gets pregnant in the first year....leaves...comes back and still only does minimal work?

[@slicingpie]

Slicing Pie would easily solve this problem. In the US, she would be expected to return to her job after maternity leave. If she failed to perform she risks getting terminated for cause and losing her slices in the Pie.

[@Live.Life.Restored]

Slicing Pie Thank you for your response. So even though she put in cash, used her 'good credit score' to get loans and a credit card for the business, she still risks termination for lack of performance after returning? Also, what is the theoretical value of a credit card or loan, arent they liabilities rather than assets? Her argument is that she is still entitled to her slices because of the amount of money she put in with loans etc. I disagree with her bc I put in cash and insane amounts of work to get our business up and running. Thanks again! You're a tremendous help!

[@slicingpie]

Yes. She is not a mystical being, nobody is. Have you read The Slicing Pie Handbook? amzn.to/2MinZKZ

[@LordMJ]

@@Live.Life.Restored Months later, but did she put money directly into the company, or used her credit score to get loans for the business? In the latter case that is a liability that the company has to assume. If SHE has paid out any money to make loan payments that is a cash contribution to the company. If she hasn't though, termination for poor performance means she loses her slices. If she made loan payments, if she is terminated, then her slices resulting from making those payments are reduced by 1/4 (removing the multipliers).

[@stubb1qaz]

It seems this presentation is for people who never paid taxes. I’m missing the discussion of taxation. The point of upfront distribution is 0% taxes paid. If you progressively grant as the value of the company grows you end up bleeding 40% of share current value to taxes. You also end up paying a looot of taxes on shares that might never account to anything. Am I missing something?

[@slicingpie]

Taxes could be triggered based on the underlying value of the shares at the time they are granted. In Slicing Pie companies this is almost always $0 (or a nominal par value) because the grants occur during the bootstrap stage before any value can be assigned. Thus, tax, if any, is minimal. Additionally, on the off chance that founders think they might wait until after a valuation event (not recommeded), there are other ways to prevent taxes such as the use of restricted shares that use Slicing Pie as the vesting mechanism instead of time (slicingpie.com/bootstrapper-equity-why-time-based-vesting-is-a-waste-of-time/) In the ten+ years since the publication of the first Slicing Pie book thousands of startups have use the model and we haven’t heard of a single case where implementation of the model triggered taxes. Slicing Pie isn't a way to avoid taxes, per se, it just doesn't trigger taxes any more than any other structure or formula.

[@stubb1qaz]

@@slicingpie if the company raises pre seed, the seed and then series A in first 4 years, the series A will already carry a substantial valuation forcing the parties receiving shares to incur either a tax penalty at receiving the maybe-worthless shares or at the liquidity event losing 40% of the value. I agree it doesn’t matter if you bootstrap but when the external capital comes in, it forces valuation resulting in shares worth increase and subsequently taxation Up front distribution with vesting schedule allows founding team and early employees to extract 40% more money out of their shares than later stage distributions. Is there a way you can apply SlicingPie and preserve the day 1 value of the distributions?

[@jacquelinewalker6357]

V

[@calebplumleeoutdoors]

I don't think anyone is surprised that the guy with only cash weights his contribution x4 while the people with the idea and execution abilities get screwed. Yes, cash investment is a risk, but at the end of the day, hes OFO while the others make shit happen.

[@calebplumleeoutdoors]

In the example, the programming expert bro has no way to increase his share. He gets diluted to oblivion while the big cash guys have more and more power to bring in more cash guys, who programmer never agreed to and takes a huge slice. Zero way to get ahead, despite possibly being the only person capable and willing when the company started. Shizzy AF

[@slicingpie]

Take a closer look, this isn't the case at all. Cash doesn't really have an advantage. The mutiplier simply puts cash and non cash on the same level. slicingpie.com/the-magic-of-mutipliers/ Most startups aren't cash intensive (or shouldn't be) and those that are can seek other types of cash investments. @@calebplumleeoutdoors

[@calebplumleeoutdoors]

@slicingpie I'm looking. I see no way for the programmer in your example to grow their share aside from starting with more money. That person started at 2% equity and it appears no matter how hard they work and how important they are to the company's success, their share wont grow by any significant means other than attrition. It's a disincentive from the start... Rich dudes stand to get immensely richer... smart tech folks stand to get outvoted in everything and go home with beans in comparison. This shouldn't be the case with founders. How would you propose that original partner/founder increase their share?

[@slicingpie]

@@calebplumleeoutdoors Assume the following: the developer is worth $50K, the Founder is worth $100K. Neither is paid. Think of unpaid compestation or expense reimbursement as a "bet" on the future of the company. Week one: Developer works 40 hours or $2,000 in unpaid salary, the Founder works 40 hours or $4,000 in unpaid salary and she spents $7,500 on equipment. The uncle does no work but buys supplies for $20,000. After applying the normalizers you will get a 2%/29%/69% as seen in the video. Fast forward 9 more weeks. The developer's total unpaid compensation (bet) is now $10,000, the founder's unpaid compensation is $20,000 but no more cash is spent. Now this split is 12%/41%/47% Fast forward another 10 weeks with the same workloads and the split is now 17%/48%/35% Another 10 weeks and the split is 21%/52%/28% The founder is now the majority shareholder and the jr. developer is right behind the uncle. In the beginning the uncle had the biggest bet but as other people bet going forward the percentages change. That's the magic of the model. At any given time it's always fair.

[@calebplumleeoutdoors]

@slicingpie Yes, unless a funder makes an investment that dwarfs the expected compensations of the others. Scenario: Rich uncle see's opportunity, currently has majority, and wants to invest more. Uncle puts in $2M... then brings in friend with another $1M... developer has no say at this point and is diluted to oblivion. It shouldn't be an option to dilute a ciritcal founder into obscurity just because a rich guy is willing to gamble some money to sweep the entire company up. This "fair" method heavily relies on the most wealthy member to not be greedy and run away with the entire bag.

[@malachiashley528]

The only fair split is taking 100% off the top

[@slicingpie]

This is a good approach if you are prepared to personally cover salaries and expenses for the business from day one!

[@Otang6]

It doesn't really add up to me. All of the hypothetical values are estimates, so when you add them up you just have an equation full of assumptions. This is essentially what people are negotiating for already when they choose 40/60 or 50/50. Using the market value of the inputs is not much different than using the result of the negotiation as the market value. There are also common solutions like vesting with cliffs so you're not being paid "4 years salary immediately", but you earn the ownership overtime. I also feel there's an undertone of bias against the builders (developers), and overvaluing the investor. Time is worth more than money; it doesn't make sense for money to be valued 2x as much as time.

[@andreweinhorn]

Counting hours sucks =(

[@vecter]

These multipliers are completely arbitrary

[@slicingpie]

Multipliers are based on research I did about 10 years ago on global tax rates such as sales tax income tax employment taxes vat taxes, etc. Taxes very widely all over the world but the average is about 50%. That's where the two and four come from. I originally used three multipliers one, two, and four. But then I realized that there are only two types of contributions cashing on cash. Hence the two and four multipliers. I've never seen the model work better with different multipliers.

[@phoenixrising3415]

This guy thinks he’s a master, he’s actually a fool

[@slicingpie]

You're totally incorrect, fool.