How Slicing Pie Works
The secrets used by thousands of startups all over the world to create a perfectly fair equity split.
This course will take you about an hour to complete!
The Slicing Pie Model
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Introduction to Fair Equity Splits
Using Blackjack as an analogy, we can see the logic in action: each person's share of the winnings should be based on each person's share of the bets. Fairness is not a matter of opinions, it is a matter of facts. In business, facts can be observed and tracked because everything in business is quantifiable in terms of fair market values. When someone contributes to a startup company and is not paid a fair market salary or not reimbursed for expenses the unpaid amounts are essentially "bets" on the future outcome of the company.
A dynamic equity model changes over time as the business progresses. People come and go, productivity and commitment levels may change. The Slicing Pie model self-adjusts as things happen so it's always fair.
Recovering Equity Upon Separation
One of the most disruptive events in a startup is when a founder leaves the company. With traditional splits these events lead to painful renegotiations and unfair buyouts. Slicing Pie, however, applies the logic of fairness to protect all parties in the event of separation.
Sometimes you already have a fixed split in place and will need to make an adjustment. This tool will help you determine the right number of shares to buy back. Buying back at par value instead of issuing shares at a potentially higher value may help avoid unnecessary taxes. The tool can also calculate whose shares should vest when using Slicing Pie as your vesting mechanism. Time-based vesting is not used in Slicing Pie. It is fundamentally unfair because the underlying split is unfair. Slicing Pie, itself, can be used as a fair vesting tool.
Slicing Pie Tools
This video starts with a little recap of the model. To jump to the software slide over to 1:40! The Pie Slicer is an optional online application that allows teams to keep track of each person's contributions in real time. The Free Solo version allows a solo entrepreneur to keep track of contributions prior to forming a team.
There are three reasons that a person would not want to use Slicing Pie, but none of them are reasons to abandon its use. Slicing Pie always works, but sometimes people need some time to fully understand how it works. Other times people need to be avoided!
Frequently Asked Questions
Slicing Pie is a new way to think about an old problem. You probably have questions. Here are some of the most common questions. Once Slicing Pie "clicks" you'll see that going back to the old way is impossible to understand!
The things you track with Slicing Pie are the things most companies track anyway. Most companies track payroll and expenses. There is nothing new in Slicing Pie except that with Slicing Pie you are going to track what you don't spend as opposed to what you do spend.
Fair market value is a function of the job requirements and the qualifications of the applicant. Startups and founders, like in any other company, should plan on negotiating a rate that works for both parties. People don't work for free forever. When the company can pay it will pay. It's important to know how much it will pay when the time comes.
Slicing Pie works anywhere in the world because it reflects a universal logic about what is fair. Think of it as a moral agreement first and foremost. That being said, it's important to understand that equity allocation and recovery laws may be different from state to state and country to country. The right legal agreements and lawyers can help you make sure you are compliant with local laws.
I most cases, Slicing Pie will have no impact on your relationship with investors other than the fact that you will have a clean, conflict-free cap table which is exactly what investors want!
Many people who find Slicing Pie do so after realizing their current split isn't far. Your current fixed split agreements can be changed to reflect the logic of Slicing Pie.
Nobody has to track hours. You can your team can keep track of contributions in any granularity that you want hours, minutes, days, weeks, months, even Parsecs! Advisors are simply a special type of employee. Most people don't like tracking hours, but you still have to pin down fair market compensation. In many cases a simple retainer agreement can work well.
There's more to a startup than ideas. All ideas require execution. In some cases, however, additional compensation can be allocated to the originator of intellectual property.
Slicing Pie is mainly concerned with the financial aspects of a startup's equity but it can also impact voting rights. There are a number of ways to think about this problem.
The Slicing Pie Game
The Slicing Pie game is a fun way for you and your teammates to learn about the Slicing Pie model. It was created for our live events and Mike Moyer's students at Northwestern and the University of Chicago and is used as a classroom exercise a some of the world's top business schools. It is a team-based game that can be played live or in person using an online game tracker app (for the team captain) and online card decks (for each player).
Wicked Cool Bonus Stuff
Become a Pitch Ninja by using the Super-Awesome Presentation Zone Program to "choreograph" your next investor pitch. Most business presentations are boring. This book will help you understand how to use nonverbal communication to capture and retain interest from the audience.
Will Work for Pie covers the basics of the Slicing Pie model plus more detail on specific applications including variable compensation programs, paying advisors, sales commissions and more!
About the teacher
The inventor of the Slicing Pie model, Mike is a career entrepreneur and investor who has started and run companies in a variety of industries ranging from clothing manufacturing to marketing technology. Today he runs Slicing Pie, a SaaS company that helps startup founders create perfectly fair equity splits, and MosquitOasis that makes pop-up mosquito net tents for kids.He teaches entrepreneurship at Northwestern University and has held other faculty appointments at the University of Chicago Booth School of Business and MIT. He has written ten books with a focus on business and entrepreneurship including The Slicing Pie Handbook: Perfect Equity Splits for Bootstrapped Startups and Will Work for Pie: Building Your Company With Equity Instead of Cash.Mike holds an MS in Marketing from Northwestern University and an MBA from the University of Chicago. He lives in Lake Forest, IL with his wife and three kids.