But, you may already know this if you’re struggling with equity splits for your startup. By. Page 10. 2 Slicing Pie Handbook the time you finish reading, you will
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The Slicing Pie Prin ciple % share of the reward = % at risk My Promise contains not just good advice, but the greatest advice on the subject that you have ever received , I will happily refund your money an d apologize for wasting your time. Mike@SlicingPie.com My Butt – Covering Disclaimer If anything in thi s book sounds like legal advice not. If anything in this boo k sounds like financial advice m not an accountant ,

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Foreword 2008 when I first saw the results of the equity – split analyses I was doing with Thomas Hellmann. 1 I had seen the problems personally time after time with founding teams, but now had systematic evidence across more than a thousand U.S. startups: The most common ways in which founde rs split the equity were also the most hazardous. In particular, we found that 73% of teams split the equity within the first month of the startup, at the strategy and business model, their roles in it, and their levels of commitment to it. Most of the teams barely spent any time discussing the split, avoiding having the difficult conversations necessary to really intentions. And the majority of them split it statically 1 The final version of the paper with those analyses is Hellmann, T. & N. Wasserman (2016) The first deal: The division of founder equity in new ventures. Management Science .

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information emerged about contributions and commitment. I started referring to teams who had split Handshake teams incurred a significant penalty when raising their first round of financing, either in reduced ability to raise the round or in lower average valuations if they did raise, ceteris paribus . And that was only the cost in terms of financing; within the founding teams themselves, the destructive tensions caused by a bad split are often even more devastating. journey and your cofounder proposes a Quick Handshake those pressures. Even a startup with a great idea can be stopped in its tracks by such a decision. Zipcar succeeded despite the fact that founder – CEO Robin ick Handshake. Likewise, for Facebook with Mark – considered static split with Eduardo Saverin, which caused costly legal fisticuffs between the cofounders. For every startup like these that survives a disastrous equity split, many more f ail because of it. In fact, how founders split the equity among themselves is one of the biggest make – or – break issues

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they face as a team. 2 Make sure that your equity – split decisions will heighten your chances of success rather ccumb to the rosy expectations that pervade the entrepreneurial mindset during the early days when Robin and Zuck split the equity, when they were least likely to anticipate, discuss, and plan for pitfalls on their journey. How can founders avoid the ang st, destructive tension, and legal problems that come with a bad – learned advice was something that takes seriously the remaining uncertainties and is able to adjust to their occurrence. The most common individual has to earn his or her equity stake instead of being granted it fully at the time of the split. In the U.S., this vesting is almost always time – based, but about 10% of teams adopt milestone – based vesting, which requires clearly – definable milestones, a concrete division of labor within the team, and other characteristics lacking in many founding teams. Vesting is a huge improvement over the static splits that pervade Founderdo m. However, in many cases, time is a weak proxy for the creation of value in a startup, making it an imperfect basis on which to split. 2 As a whole, I call those make – or – or Relationships, the ways they allocate the Roles and decision making within the team, and the allocation of Rewards. 2 Across the 3Rs, the most pervasive theme is fraught with per il. For more on the 3Rs, see Chapters 4 – 7 of Wasserman, N. 2012. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup . Princeton, NJ: Prin ceton University Press.

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C ontents Meet Slicing Pie .. 1 Fix & Fight .. .. .. 23 The Slicing Pie Principle .. 29 Allocation Framework .. .. 46 Cash Contributions .. . 54 Non – Cash Contribu tions .. 68 Recovery Framework .. . 90 Freezing the Pie .. .. 108 Financing th e Pie .. 116 Legal Issues .. 124 Retrofit/Forecast .. . 144 Objections .. .. . 156 Resources .. .. .. 164 The Pie Slicer .. 170 About the Author .. .. 187 Appendix (Changes from the Original Book) 189 Index .. .. . 199

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Chapter One : Meet Slicing Pie My missio n in life is to make sure that every entrepreneur on the planet gets what they deserve from their company. We live in a world where entrepreneurs and early – stage company participants get taken advantage of so frequently that we hardly notice. Bad equity d eals are the rule, not the exception. Fairness is rare. The intent for fairness is there, but the practice of fairness is not. Slicing Pie is an equity model that allows people to align their intent of being fair with their ability to ac tually pull it off. m going to start off with a high – level overview of the Slicing Pie model before jumping in to the nitty – gritty of how it works. Once you get your head around the concept, it will make plenty The conventional wisdom, as you shall see, has major struggling with equity splits for your startup. By

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2 Slicing Pie Handbook the time you finish reading, you will know exactly how to split up the equity in your company. Slicing Pie a straightforward process for implementing a dynamic organic equity split in an early – stage startup t hat ensure s the fairest equity split possible. It is designed for bootstrapped startups and is used prior to cash flow breakeven or the first m ajor funding event. It is a universal, one – size – fits – all, self – adjusting model that maintains fairness even as things change. Startup companies change all the time. People come and go, strategies change, cash is consumed ay people only thing that change about startups is the fact that they are always changing. Startup Equity Equity in a startup entitles the owner to a portion come. The rewards are a portion of the future pro fits or the proceeds of a sale. Slicing Pie is based on a simple principle: a always be risk to attain those rewards. W hen a person contributes to a startup company and does not get paid for their contribution, they are putting their contribution at risk with the hopes of getting a future reward. And, while the timing and the amount of the future

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Mike Moyer 3 reward is unknowable, the amount of the contributions at – risk is knowable. It is equal to the fair market value of the contribution s . impossible to know when or even if the rewards will ever com e, we can never know how much people must put at risk to get the rewards . E very contribution , therefore, is essentially a bet on the future of the company and nobody knows when the betting will end. Blackjack Think of the startup as a game of Blackjack. You and a partner each bet $1 on the same hand. You have no way of knowing hands pay different amounts. The future, in other words, is un knowable. What is knowable is that you each contributed the same amount and that amount is at – risk because you could lose it all. If you win, you should split the winnings 50/50, which is perfectly fair because you each bet the same. But, what if the dealer deals two Aces? You of the new opportunity, so you decide split the Aces and double – down play Blackjack, splitting the Aces means you are turning one hand into two hands and placing another bet.) Unfortunately, your partner is out of have no way of knowing

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