How to Achieve Perfect Equity Splits for Startups

Unfortunately bad equity deals are the rule. Not the exception.

Mike Moyer states over 70% of startup teams divide their equity within the first month. Despite high uncertainty about strategy, roles, and commitment levels.

Most avoid difficult discussions about potential contributions and intentions. And they choose a static split.

A static split doesn't allow for future adjustments. This can lead to unfairness.

Before presenting a method that results in fair distribution, the question is:

Why is Fair Equity Split Crucial?

Imagine a top sports team where every member feels valued and motivated. Startups mirror this dynamic. Fair equity splits foster a sense of ownership and commitment, igniting a collective passion for shared success. However, when founders perceive inequality in contributions—be it in terms of money, effort, or risk—it can lead to issues that hinder progress and, in extreme cases, result in failure.

So, how can a fair equity split be ensured, not just initially but continually?

Here comes the game-changer:

The Slicing Pie Method by Mike Moyer.

This easy but groundbreaking method works on the idea that a person's equity share should match their share of contributions at risk. These contributions are either cash or non-cash. They include not just money, but also ideas, time, relationships, equipment, and other resources given without full payment at their fair market price. The conversion into "Slices" makes sure all risky contributions are equal, creating a fair equity split that changes over time.

The formula is simple and yet magical:

Individual's % share = Individual's Slices ÷ All Slices

Founders dealing with the complex world of startup equity should internalize this formula. It doesn't just promote fairness—it also helps determine a fair buyout price if someone leaves the company before it breaks even.

You want to dive deeper into the topic?

You can find more information (and a free sample) about the Slicing Pie method here —> https://slicingpie.com/learn-slicing-pie-model/

Want more tips and tricks for your startup journey? Check out our Startup Insights at www.inits.at/insights