80
EUREKA! @GruntFunds www.SlicingPie.com/feedback Slicing Pie

Perfect Equity Splits for Startup Companies

Embed Size (px)

DESCRIPTION

Learn how to create a perfect equity splits for early stage companies. Contrary to popular belief, there is a way to determine exactly how much equity each person in your company deserves. Based on the book, Slicing Pie (SlicingPie.com), by Mike Moyer (mikemoyer.com)

Citation preview

Page 1: Perfect Equity Splits for Startup Companies

EUREKA!

@GruntFunds

www.SlicingPie.com/feedback

Slicing Pie

Page 2: Perfect Equity Splits for Startup Companies

Why?

Page 3: Perfect Equity Splits for Startup Companies

Fun along the way BIG

PAYOUT HARD WORK

Page 4: Perfect Equity Splits for Startup Companies

Fun along the way ? HARD WORK

Page 5: Perfect Equity Splits for Startup Companies

Success Criteria 1. Lots of money 2. I get my fair share

Page 6: Perfect Equity Splits for Startup Companies

Fair = Fun

Page 7: Perfect Equity Splits for Startup Companies

Your Share % =

The Value of Your Contribution The Total Value

Perfectly Fair Equity Calculation:

Page 8: Perfect Equity Splits for Startup Companies

Fixed Equity Split

67% split equity at the outset of the venture

* Wasserman/Hellman

Page 9: Perfect Equity Splits for Startup Companies

“50/50” “33.3/33.3/33.3” “25/25/25/25”

90%+ of startups do equal splits

Page 10: Perfect Equity Splits for Startup Companies

“60/40” “51/49”

“25/30/45”

Page 11: Perfect Equity Splits for Startup Companies

You do all the work?

You bring in another guy?

Your partner wants to quit?

1,000,000 other things?

But, what if…

You want to quit?

Your CTO gets hit by a bus?

Page 12: Perfect Equity Splits for Startup Companies

Your Share % >

The Value of Your Contribution The Total Value

Your Share % <

The Value of Your Contribution The Total Value

Page 13: Perfect Equity Splits for Startup Companies

Alligator Pit

Page 14: Perfect Equity Splits for Startup Companies

Not Fair =

Not Fun

Page 15: Perfect Equity Splits for Startup Companies

What We Need

• Perfectly fair

• Rewards contributions

• Provides motivation

• Accommodates team changes

• Flexible in the face of rapid change

• Gets rid of the gators!

Page 16: Perfect Equity Splits for Startup Companies

Dynamic Equity Split

Page 17: Perfect Equity Splits for Startup Companies

You Contribute 50% = You Get 50% You Contribute 10% = You Get 10%

You Contribute 23.2% = You Get 23.2%

No more and no less

Page 18: Perfect Equity Splits for Startup Companies

Fair = Fun

Page 19: Perfect Equity Splits for Startup Companies

The Grunt Fund

1.Allocation Framework 2.Recovery Framework

Page 20: Perfect Equity Splits for Startup Companies

Allocation Framework

1. Convert contributions to Slices

2.

3. Allow it to self adjust over time (dynamic)

Your Share % =

Your Slices

Total Slices

Page 21: Perfect Equity Splits for Startup Companies

Risk vs. Return aka Making Bets

Page 22: Perfect Equity Splits for Startup Companies

Convert to Slices

Non Cash Cash

Page 23: Perfect Equity Splits for Startup Companies

Fair Market Value

Page 24: Perfect Equity Splits for Startup Companies

Convert to Slices

Non Cash Cash

FAIR MARKET VALUE

FAIR MARKET VALUE

Page 25: Perfect Equity Splits for Startup Companies

Convert to Slices

Non Cash Cash

FAIR MARKET VALUE

x2

FAIR MARKET VALUE

x4

Page 26: Perfect Equity Splits for Startup Companies

Time

Fair Market Salary -

Cash Compensation X 2 ÷

2,000 =

Grunt Hourly Resource Rate (GHRR!)

Page 27: Perfect Equity Splits for Startup Companies

Time

$100,000 -

$25,000 ($75,000 at risk) X

Two ($150,000) ÷

2,000 =

Grunt Hourly Resource Rate (GHRR!) 75 slices/hr

Page 28: Perfect Equity Splits for Startup Companies

Small Money

Cash Amount

X

4

(Investments Convert When Spent)

Page 29: Perfect Equity Splits for Startup Companies

Equipment

• New = Purchase price x 4 (cash)

• Less than a year old = Purchase price x 2 (non-cash)

• Older than a year = Book value x 2 (non-cash)

Page 30: Perfect Equity Splits for Startup Companies

Everything Can Convert

• Unpaid Commission x 2

• Unpaid Royalty x 2

• Unreimbursed Expense x 4

Page 31: Perfect Equity Splits for Startup Companies

Grunt Funds in Action

Page 32: Perfect Equity Splits for Startup Companies

Grunts Contribute Different Things

Grunt 2 Grunt 1 Grunt 3

Jr. Developer Founder Rich Uncle

Page 33: Perfect Equity Splits for Startup Companies

Convert to Slices

Grunt 2 Grunt 1 Grunt 3

Jr. Developer Founder Rich Uncle

Page 34: Perfect Equity Splits for Startup Companies

Add ‘Em Up!

Page 35: Perfect Equity Splits for Startup Companies

Grunt 1’s Share

÷

Page 36: Perfect Equity Splits for Startup Companies

Grunt 2’s Share

÷

Page 37: Perfect Equity Splits for Startup Companies

Grunt 3’s Share

÷

Page 38: Perfect Equity Splits for Startup Companies
Page 39: Perfect Equity Splits for Startup Companies

Sales Guy

Grunt 4

Page 40: Perfect Equity Splits for Startup Companies

Sales Guy

Grunt 4

Page 41: Perfect Equity Splits for Startup Companies
Page 42: Perfect Equity Splits for Startup Companies
Page 43: Perfect Equity Splits for Startup Companies

Grunt 1’s Share*

÷

*If the Grunt Does Nothing Else

Page 44: Perfect Equity Splits for Startup Companies

Grunt 2’s Share*

÷

*If the Grunt Does Nothing Else

Page 45: Perfect Equity Splits for Startup Companies

Grunt 3’s Share*

÷

*If the Grunt Does Nothing Else

Page 46: Perfect Equity Splits for Startup Companies

Grunt 4’s Share

÷

Page 47: Perfect Equity Splits for Startup Companies
Page 48: Perfect Equity Splits for Startup Companies

Recovery Framework

Page 49: Perfect Equity Splits for Startup Companies

Recovery Framework

Page 50: Perfect Equity Splits for Startup Companies

Recovery

• No pie for non-cash

• No multiplier for cash or tangible property

• Buy back if possible

• Non-compete

• Loyal employee protection

Page 51: Perfect Equity Splits for Startup Companies

Removing a Grunt

• Keeps pie

• Buyback at proxy value = $

• No non-compete

Page 52: Perfect Equity Splits for Startup Companies

Grunt 4

Convert to Slices

Grunt 2 Grunt 1 Grunt 3

Jr. Developer Founder Rich Uncle

Page 53: Perfect Equity Splits for Startup Companies

Grunt 4

Convert to Slices

Grunt 2 Grunt 1 Grunt 3

Jr. Developer Founder Rich Uncle

Page 54: Perfect Equity Splits for Startup Companies

Removing Contributions

Page 55: Perfect Equity Splits for Startup Companies

Grunt 2’s Share

÷

Page 56: Perfect Equity Splits for Startup Companies

Grunt 3’s Share

÷

Page 57: Perfect Equity Splits for Startup Companies

Grunt 4’s Share

÷

Page 58: Perfect Equity Splits for Startup Companies
Page 59: Perfect Equity Splits for Startup Companies

Freezing the Pie

Page 60: Perfect Equity Splits for Startup Companies

Freezing the Pie

Page 61: Perfect Equity Splits for Startup Companies

Freezing the Pie

• When you can just pay people!

– Revenues

– Series A investment

Page 62: Perfect Equity Splits for Startup Companies

Time

$100,000 -

$0 ($100,000 at risk) X

Two ($200,000) ÷

2,000 =

Grunt Hourly Resource Rate (GHRR!) 100 slices/hr

Page 63: Perfect Equity Splits for Startup Companies

Time

$100,000 -

$25,000 ($75,000 at risk) X

Two ($150,000) ÷

2,000 =

Grunt Hourly Resource Rate (GHRR!) 75 slices/hr

Page 64: Perfect Equity Splits for Startup Companies

Time

$100,000 -

$50,000 ($50,000 at risk) X

Two ($100,000) ÷

2,000 =

Grunt Hourly Resource Rate (GHRR!) 50 slices/hr

Page 65: Perfect Equity Splits for Startup Companies

Time

$100,000 -

$75,000 ($25,000 at risk) X

Two ($50,000) ÷

2,000 =

Grunt Hourly Resource Rate (GHRR!) 25 slices/hr

Page 66: Perfect Equity Splits for Startup Companies

Time

$100,000 -

$100,000 ($0 at risk) X

Two ($0) ÷

2,000 =

Grunt Hourly Resource Rate (GHRR!) 0 slices/hr

Page 67: Perfect Equity Splits for Startup Companies

Freezing the Pie

Page 68: Perfect Equity Splits for Startup Companies

Freezing the Pie

Profits or Proceeds

Page 69: Perfect Equity Splits for Startup Companies

Series A Investor

Negotiate $900,000 Pre Money

Raise $1,000,000

Page 70: Perfect Equity Splits for Startup Companies

Series A Investor

$1,000,000 + $900,000 = $1,900,000

Page 71: Perfect Equity Splits for Startup Companies

Series A Investor

$1,900,000 Post-Money

Page 72: Perfect Equity Splits for Startup Companies

Freezing the Pie- Series A

Profits or Proceeds

Page 73: Perfect Equity Splits for Startup Companies

What We Got

• Perfectly fair

• Rewards contributions

• Provides motivation

• Accommodates team changes

• Flexible in the face of rapid change

• Gets rid of the gators!

Page 74: Perfect Equity Splits for Startup Companies

Cheat Sheet

Page 75: Perfect Equity Splits for Startup Companies

Resources

Page 76: Perfect Equity Splits for Startup Companies
Page 77: Perfect Equity Splits for Startup Companies
Page 78: Perfect Equity Splits for Startup Companies

A La Mode at SlicingPie.com

• Lawyers

• Agreement templates

• Videos

• Articles

Page 79: Perfect Equity Splits for Startup Companies

Other Books by Mike

Page 80: Perfect Equity Splits for Startup Companies

EUREKA!

Download the Slides:

www.SlicingPie.com/feedback

Slicing Pie [email protected]