Mike and John start a business. They decided to split everything “50/50”. Mike sits on his butt while John does all the work. John needs to hire someone to help because Mike is worthless, but Mike owns 50% of his business- now what?
Somewhere between the time you conjure up the idea for your new business and the time you make the pitch to Kleiner Perkins there is a gap. During this gap you have to actually build something that resembles a business. If you have plenty of cash this should be relatively easy. If you don’t you’ll need to slice the pie.
Slicing Pie means paying the people who help you with equity in your business instead of cash. This can be a very powerful tool that in some ways is better than cash (but not all ways, unfortunately).
Slice the pie properly and you will compensate the people who help you in a fair and equitable manner. Slice the pie improperly and you will destroy your business and burn bridges with the very people who came to help.
We need a simple model to help us properly slice the pie. It needs to be flexible and fair. By fair I mean it needs to give each founder what they deserve. And by flexible I mean it needs to adapt over time to re-allocate the equity so that the distribution stays fair until the fledgling company takes flight.
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