The entrepreneurship world is awash with startup equity calculating advice from smart, educated, successful, well-meaning people. Some of these people have distilled their wisdom into online apps that will help you and your team calculate equity for the cofounders. A number of them are even supported with research projects with input from hundreds or even thousands of real actual founders. There is only one problem: they are all wrong (except one).
The reason all cofounder equity calculators are wrong is that they all share one fatal flaw: they require the users to have the ability to accurately predict future events. The inputs are based on things like who’s idea was it (predicts that the idea actually matters and the company won’t pivot), time commitment (predicts this won’t change), the importance of activity (predicts an individual’s productivity), I could go on, but you can check them out yourself. Online equity calculators are based on traditional startup equity models which never work because it’s impossible to predict future events.
The only thing that never changes about startup companies is the fact that they are always changing. Whatever you think might happen is rarely what actually happens. So, when you base your equity splits on assumptions that will inevitably change, you must go back and change your equity split.
Getting a cofounder to decrease their share of the equity is never easy and often involves the deterioration of important founder relationships and the involvement of legal intervention which can quickly deplete already small financial and time resources. I’ve heard some lawyers estimate that 60%-80% of traditional equity splits wind up in disputes that require legal interventions. These are the kind of splits created by most cofounder equity calculators.
I have yet to find a startup equity calculator that was not developed by a very intelligent person with the best intentions of helping hapless founders make good choices about equity. Many of them are experienced entrepreneurs with status, wealth, and success that exceeds my own, but the fact remains that they are providing the same kind of fundamentally flawed advice that everyone else provides.
Slicing Pie, unlike traditional equity formulas, is based on what people actually do during the bootstrapping stage of a company’s lifecycle and is designed specifically to accommodate changes over time so that it stays fair. Our founders pie calculator, called The Pie Slicer, helps the team keep track of who deserves equity and how much. The tool automatically adjusts based on observable changes in team membership, commitment levels, financial commitments, and even changes in corporate strategy.
Unlike other equity calculators, The Pie Slicer easily accommodates new team members and properly adjusts based on the specific circumstances of a teammate’s departure. The Pie Slicer software always works because it is based on the Slicing Pie model.
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