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
The Fatal Flaw
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.
What You Can Predict
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
Renegotiating Equity Splits is Painful
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
Smart People with Good Intentions
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.
The Slicing Pie Founder Pie Calculator
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.