Slices that Can Survive Separation

The Recovery Logic of Slicing Pie outlines what happens to a person’s slices when they separate from the company. In a nutshell, if a person is terminated for cause or resigns without cause they will lose slices and forfeit their rights to future equity. If, however, he or she is terminated without cause or resigns with cause the slices stay in the Pie and convert to equity along with everyone else.

Survivors

There are some situations that would “survive” termination of employment including ongoing payments like rent and royalties. To account for these situations, you have to think through what’s going on when it comes to what’s at risk.

Landlords

When someone rents you their property that person’s “job” is “landlord” doing whatever landlord stuff you negotiated in the lease. (Often there is no lease because you just decided to park your business in a cofounder’s garage until you could afford office or warehouse space. For this example, don’t overthink it.)

If the landlord is just a landlord and nothing else, the Slicing Pie termination logic applies just as it would to any other Grunt on the team. Being a landlord is the job:

• Termination for cause example: the landlord keeps leaving the garage door open exposing you inventory to inclement weather. After two warnings you can “fire” the landlord for good reason. The landlord would lose his non-cash slices.
• Termination without cause example: you generate enough revenue to move to a more suitable space. The landlord keeps his slices. He didn’t do anything wrong, you just outgrew the space.
• Resignation with cause example: your team fails to maintain the property as promised and you are evicted. The landlord gets to keep his slices.
• Resignation without cause example: the landlord wants to use his garage for his collection of classic Mini Coopers and kicks you out, he loses his slices.

But what if the landlord is also the CTO? In this case you’ll need to separate the CTO job from the Landlord job. Continued use of the space would preserve the previously allocated slices and new slices would be added on a go-forward basis.

For example, a startup called MosquitOasis is using Jack’s garage to store inventory. Jack is also the CTO. He contributes slices to the Pie as he does work and every month he makes a $500 non-cash contribution which is rent on the garage. Jack gets terminated for cause, but the team wants to continue to use the garage. Jack, having been warned twice before losing his job, is still on good terms with the team and agrees. Per the Recovery Logic of the Slicing Pie model, Jack would lose the slices contributed for everything except rent. And, going forward, he would be entitled to $500 monthly rent payments or contributions to the Pie. In this scenario, the Landlord job survived the CTO job.

If, on the other hand, Jack kicked the team out of his garage he would lose the slices contributed for the past rent in addition to everything else. The Landlord job does not survive because Jack ended it.

Royalties

Similarly, the licensee of intellectual property may have a royalty that survives termination of the individual. If the inventor of a new product is also a participant in the startup formed to market the product separates from the company it is likely that he or she will continue to collect royalties after separation from the firm. In this case, the job is “inventor” or “licensor”. The job is simply to continue to allow the startup to commercialize the innovation in exchange for a royalty payment.

For example, Jill invents a new kind of ski carrying device and secures a patent for the design and a trademark for the name Schlep.Ski®. She then finds a partner to help bring the product to market and, instead of including development costs in the Pie, she and her partner decide that she will receive a 3% royalty on revenues generated in addition to her salary as the VP of Product Development. The royalty, like her salary, is payable in cash if cash is available. If cash is not available, the team will allocate slices in the Pie.

Jill decides one day that she wants to pursue other interests and quits. This is resignation without good reason, and she will lose any slices she contributed to the Pie for her non-cash contributions. However, the license agreement and royalty payments will survive her separation. She will continue to have the Licensor job which will go on until the license terminated (depending on the terms of the license).

If, however, Jill revokes her license upon leaving she would lose any slices associated with royalties earned to date.

On a side note, this is why I’m not a fan of license deals for founders of startups. It’s better to simply include the development costs and time for the IP in the Pie from the beginning and not do a license deal.

Other Survivable Scenarios

There are a few other situations that would have similar treatment. If a Grunt provided use of capital equipment like a truck or a printing press for which they would be due a rent payment continued use of the equipment would extend past the separation of the employee.

Another situation would be if the Grunt used a Slicing Pie loan agreement to loan money to the startup that is still being repaid. The job in this case is “Lender”. The company would continue to pay off the loan or add slices to the Pie according to the terms of the loan. The Lender job, would survive any other jobs held by the individual. Those slices would stay in the Pie.

Note: If the loan was already paid off this would not apply but skipped payments would need to be paid back prior to distributions of dividends.

The goal is to align the interests of the company and the participant. The goal is not to split hairs and try to recapture slices in the event of an unhappy separation. For instance, it would be futile to claim that a company should provide slices in the Pie for random office supplies you left in the office. You need to be careful what survives a separation so think it through or set up a time to discuss the issue with a Slicing Pie expert.