| Think of your startup as a gamble (because it is). People place "bets" on the future profits or sale price. Bets are placed in the form of UNCOMPENSATED time, money, ideas, relationships, supplies, equipment and facilities. Your employee is betting 30% of his market salary. You, the original founder, are betting part or all of your market salary plus cash to pay the 70% of the first employee's salary and anything else you have bought. Later you will add more people and they will place bets too. You have no idea how long the betting will last and how much will be bet until the company breakseven or raises a Series A round. At that point you will be able to see how much each person bet. Their equity should be based on their bets. For example. If you and I start a company and we each bet $100,000 (in various forms) before we reach breakeven we each deserve 50% of the equity. However, if you bet $300,000 and I only bet $100,000, you should get 75% and I should get 25%. Anything else isn't fair. This is the essence of the Slicing Pie model (www.slicingpie.com). The Slicing Pie model uses the fair market value of a participant's contribution to not only determine a fair equity split, but also a fair buyout (if any) when someone leaves the company. Traditionally, equity splits have been based on rules of thumb, industry averages, negotiations or guesses about the value of the company and a person's promised contributions. Traditional splits are always wrong. Slicing Pie is used all over the world. |