Startup Equity Calculators are Not All Created Equal

Startup Equity Calculators are Not All Created Equal

A quick search online will likely point you to other startup equity calculators that claim to create a fair split based on a variety of inputs such as each person’s skillset, their relative importance to the firm, how much each person plans on working and other factors. Please don’t use these startup equity calculators. Like all traditional equity split models, they are based on highly subjective inputs and guesses about future events that will probably not come to pass.

I’m sure their creators are smart, educated, experienced people with good intentions. But it’s impossible to create a fair split with the underlying logic is fundamentally flawed.

The Slicing Pie model is, and probably always will be, the only fair way to split equity in a startup company. This is because fairness is a matter of facts, not opinions. Slicing Pie applies the logic of fairness to the actual contributions from each person and calculates a fair split. If the facts change, the split changes. What is unlikely to change (at least in the foreseeable future) is the logic of what is fair and not fair.

The Slicing Pie model does not claim to have invented fairness, it simply reflects fairness as it exists in our culture. It works in business because business is quantifiable. Everything in business can be expressed in fair market values. Because we can know the fair market values, we know the facts and, therefore can determine exactly the fair answer. No other area of life offers a convenient calculation. For example, we can never know what’s fair in love and war…

Occasionally, I’ll see a startup equity calculator that claims to use a dynamic model. Slicing Pie is dynamic, but dynamic alone doesn’t mean it’s fair. Some go as far as to imply that their calculators us the Slicing Pie logic. If they truly do use the Slicing Pie logic, they may work. But a loose interpretation of the model breaks its ability to deliver fair results.

I understand the appeal of a startup equity calculator that can produce an instantaneous, concrete result. It would be nice to know upfront what your share is going to be. The problem is that no matter what the calculator tells you it is going to be wrong. Slicing Pie does not give you the number up front, but you can rest assured that when you use Slicing Pie whatever you get will be the fair amount!

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