[…] To use a dynamic stock split program – . – Slicing Pie is a formula that allows founders to create a PERFECTLY FAIR distribution between founders, investors, partners and employees. […] This means that the potential splitting of stocks changes over time, depending on what someone contributes. For this reason, it is called a dynamic split. When you get a large investor or start generating enough cash flow to pay people, you can calculate equity, issue official shares, sign a shareholders` agreement, and be on your way. So the sooner you collect money or the sooner you make money, the sooner you can “lock” equity. Opportunity to move on to it later (or check how fair your fixed equity allocation is) – Retrofit […] an employee-owned B company with a dynamic equity model, we are far beyond the hierarchical structures that characterize most companies today. But […] The basic philosophy behind Slicing Pie is that if someone contributes to a start-up and is not paid in full for their contribution, they run the risk of never getting paid. It “bets” on the future value that the company creates. The amount she bets is equal to the unpaid portion of the market value of her contribution. Their share of equity should therefore logically be based on their share of bets. For startups that use the equity of sweat to reward their co-founders for investing their resources, use the metaphor of baking a cake, you put a team together to make a cake, and everyone on the team is promised a piece of the pie once the cake is baked. At first, you haven`t even decided which cake you`re going to bake.
Will it be an apple pie? Chocolate brownie? Carrot cake? And who has the best recipe? And the main ingredients? Who can spend most of the time preparing the dough? The advantage of dynamic stock splitting is that it`s normal not to have all the answers. They start baking the cake and simply record the contribution of each baker. Before the cake goes into the oven, calculate the size of a piece of the cake to which baker based on the actual – unexpected – contribution to baking. Don`t join a startup unless you can trust other people, especially the leader. The manager controls 100% of the equity while using a dynamic model. This means that an unscrupulous leader can take advantage of anyone. The leader is responsible for tracking stocks and keeping things fair. He or she will provide the appropriate capping table to lawyers preparing the formal fairness agreement when the time is right.
The right time to issue equity is when the company provides proof of real, real and concrete value. Time is not the only input a person can provide. Other inputs include money, loans, ideas, intellectual property, essential resources (such as equipment and accessories), strategic relationships, and even things like offices. Almost anything in a start-up business that can`t be bought with money (if you don`t have it) can be acquired with equity. A dynamic model shows you exactly the value of each relative to the other entries. Everything has a relative value that is fair to the supplier and other participants. Over time, these relative values really add up. I have published a summary here on how to calculate relative values. If you`re not sure which agreement template you need, check out the infographic below.
By far the most comprehensive method of dynamic inventory splitting is the Slicing Pie method developed by Mike Moyer. Who decides what the relative values of each person`s contributions are? It is quite clear that they could be decided by agreement from the beginning, or that there is no company (i.e. if someone doesn`t like the relative division that others are proposing, they may simply decide not to get involved in the startup until they have risked their time or other resources. Of course, this does not work beyond the foundation of the company. Suppose someone has contributed much more or less than their previously allocated share split after three months, who decides whether they actually did more or less than their stake and what the amount of the new shares should be? Are the relative values reassigned periodically, by . B quarterly, at certain milestones or when relative contributions have changed significantly (and who determines this)? Co-founding a start-up without proper stock regulation is a bitter experience. I got it – never again! This has led to constant quarrels in boardrooms, loss of trust, and even ruin of friendships. That`s something you want to avoid when you`re starting a business, right? Read it like this: Carlos worked 80 hours in January and was paid with $1000 in cash, another 80 hours, he was paid with equity points with x4 multiplier (dedicated partner multiplier).
Two things you NEED TO KNOW when you start with the not easiest topic of stock splits: The money is invested by Andrew and John. That has to be taken into account. Here`s the improvement in January`s capital chart, which takes into account cash investments: Traditional stocks are based on the ability to predict the future. It is impossible, so the division will be wrong. Acquisition does little to mitigate the problem. We can help you implement an agreement that reflects the principles of dynamic justice. We find that the best way to achieve this is to conclude a shareholders` agreement with dynamic capital arrangements tailored to your business. […] Value of each participant`s contributions. Mike Moyer, who literally wrote the book on dynamic stock-outs, formulates on the first […] Again, if you think a good solution to the above challenges of early capital allocation is to postpone a decision on stocks, the answer is “barely as good.” In addition to the absolute fairness and transparency of equity allocation, the DES, as developed in the Slicing Pie method, also offers: […] Books on the subject, including one titled Slicing Pie, which helps entrepreneurs determine specific stock allocations for themselves and their partners or co-founders. Partners can be a powerful asset in building a business, […] […] The best way to discover how a dynamic equity fund works is to experience it for yourself by playing the Slicing Pie card game.
It addresses many of the challenges inherent in fixed share splits (how to make splitting shares wrong) – mainly the main problem that at the beginning it is almost impossible to predict how much each of the co-founders will contribute to the company. Once the team starts working together, either until there is enough cash to pay the co-founders for their work, or by agreement of the co-founding team to fix it, the guys decided that if a partner works more than 80 hours a month, they should be sufficiently committed to the startup and rewarded with more equity points. That`s why John and Carlos received in December, after having 160 and 160 respectively. Worked 80 hours, their points with x4 multiplier. Although Andrew holds a CEO position with the highest salary in companies, he was still employed as a parent, working only 70 hours per full month – which translates to 4200 points. Hello, I have read your book and I have a question about the articles.. .