Dynamic Equity Split Program

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So Everyone Gets What They Deserve
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While there hasn’t been much written about dynamic equity splits they are hands down the Mike Moyer
most fair way to divide up shares in a start-up company among founders, early employees,
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partners and anyone else that deserves a slice of the pie. A xed equity model, no matter how
thoughtful and well-intended, is guaranteed to treat one or more people unfairly. A dynamic Start-up Equity: I can help
you determine exactly how
model, on the other hand, will allow you to determine exactly the right number of shares each
person deserves based on (and here is the key) therelative value of their individual inputs. I
believe a dynamic equity split will soon become the de facto standard of splitting equity in
bootstrapped companies with fair leaders (that’s my goal). Popular Posts
In a dynamic equity model, for instance, the founder or founders who provide 90% of the great
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ideas, early seed money, sweat equity and other resources will wind up with 90% of the reward
and the junior developer who provides only 2% of the great ideas, early seed money, sweat Calculator
equity and other resources relative to the founders will receive 2% of the reward. This is how it September 28, 2012
should be; anyone who thinks differently is probably someone who wants more than their fair
1 of 19 3/29/2020 12:12 AM
share. (This is quite common and don’t feel bad if it’s you. All it means is that you don’t yet
u
understand the power of dynamic equity splits.) How to Use a
Dynamic Equity
Here’s how a dynamic equity spilt model works: Split Program So
Everyone Gets
What They Deserve
Step One: Have a trustworthy leader
October 12, 2012
Don’t join a start-up company unless you can trust the other people, especially the
leader. The leader will control 100% of the equity while a dynamic model is being used. This
means that an unscrupulous leader can take advantage of everyone. The leader is
responsible for tracking the shares and keeping things fair. He or she will provide the
u Initial
(ISO)
Slice Offering
November 8, 2017
appropriate cap table to the lawyers who create the formal equity agreement when the time
is right. The right time to issue the equity is when the company shows real, actual, concrete
evidence of value.
The leader will also make sure that when a person leaves they are treated fairly. I’ve posted a
u Equity Splits at
Stanford University
April 26, 2014
summary of how to treat people fairly when they leave a company here.
Step Two: Assign a relative value to the various inputs provided by each participant
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A relative value is not the same thing as an actual value. Actual values in a pre-money start-up September 20, 2012
company are pretty much impossible to determine. Relative values are much easier to
calculate and much more meaningful. The key is to set a relative value that is fair given
someone’s background, experience and job responsibilities. For instance, the sweat of an
experienced CEO with a couple of homeruns under her belt is relatively more valuable than
that of an entry-level graphic designer. However, two founders with similar skill-levels may
u Slicing Pie
Summaries
August 24, 2017
have a similar value to the rm.
When it comes to the value of someone’s time the relative value should not only take into
account their skills and experience, but also the requirements of the job. You should be sure
to subtract any current compensation the person receives in cash. Equity compensation is
2 of 19 3/29/2020 12:12 AM
provided in exchange for what people put at risk in a new company. If you pay them a fair
u
salary you shouldn’t have to give them any equity because they aren’t risking anything. Grunt Glossary
May 27, 2013
Time isn’t the only input an individual can provide. Other inputs include cash, loans, ideas,
intellectual property, important resources (like equipment and supplies), strategic
u Overcoming
relationships and even things like of ce space. Nearly everything in a start-up company that
can’t be bought with cash (if you don’t have it) can be acquired with equity. A dynamic model Objections to
will tell you exactly how much each is worth relative to other inputs. Everything has a Slicing Pie
relative value that is fair to the provider and the other participants. Over time these relative March 2, 2017
values really add up. I’ve posted a summary of how to calculate relative values here.
u
Step Three: Calculate shares by dividing an individual’s contribution to the company by the total Fair Market Value
contribution (individual value ÷ total = shares %) October 1, 2015
This will give you exactly the percentage of equity a person deserves. No more and no less. I
u
call the total contributions to the rm a “Theoretical Base Value” or TBV. It’s theoretical The Magic of
because it’s not real. It simply adds up the values of the inputs based on the value you Mutipliers
assigned in step two. So, you may determine that a founder is “worth” $200 per hour. But, if October 31, 2014
he works 1,000 hours the company may not actually be worth $200,000 more. I hope it’s
worth a lot more than that, but the point is that the value of inputs are only important as a
relative measure. I’ve posted a calculator spreadsheet here.
This means that over time the potential equity split will change depending on what someone
contributes. This is why it’s called a dynamic split. When you get a major investor or start
generating enough cash ow to pay people you can calculate the equity, issue of cial shares,
sign a shareholders agreement and be on your way. So, the sooner you raise money or the
sooner you make money the sooner you can “lock in” the equity.
Dynamic equity splits make no assumptions about the future value of a company. It doesn’t
matter what the future value will be. All that matters is that when you actually create future
value everyone who risked something to help you get there should get their fair share of what’s
3 of 19 3/29/2020 12:12 AM
created. Only a dynamic equity split can achieve this. Only a dynamic equity split provides a
framework of fairness and respect for all participants. All other methods are prone to failure in their
ability to treat people fairly. When I say “all others” I mean all others and “others” is what is
commonly used today. That means the model you used or are planning to use in your start-up is
putting you and your team at risk of unfair equity allocation. Sorry! (It’s not your fault!)
Dynamic equity splits are very uncommon, however, because the process isn’t well understood.
Additionally, the dynamic nature of the split scares people who want to grab the biggest possible
piece for themselves. Even the founder who errs on the side of generosity will ultimately fail
because they, themselves, will be treated unfairly. When you think rationally about the dynamic
split you will begin to recognize it’s inherent fairness and elegant simplcity.
I’m on a personal mission to make sure that every entrepreneur on the planet
understands dynamic equity models before they make the horrible, but common, mistake of
using a traditional xed model. Too many start-up companies are destroyed due to con icts that
arise when people on the team are treated unfairly. The dynamic model can accommodate all
possible outcomes in a way that motivates and inspires a person who is treated with fairness.
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Equity Splits in Start-up

Companies
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[…] books on the topic including one, called Slicing Pie, that helps entrepreneurs
determine exact equity splits for them an their partners or co-founders. Partners can
be a powerful asset in building a company, […]
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Founder's Shares, Dividin… […]
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Get Them Gators- Beta Version

| Slicing Pie | Start-Up Equity,
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November 12, 2013
[…] Dynamic Equity Splits aren’t widely understood. If you are trying to convince
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The Formula for the Perfect

Cofounder Equity Split |
Founder Dating
August 20, 2014
[…] framework that includes all the rules for calculating the perfect equity split. It’s
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Startup Equity Game | Slicing

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[…] of the best ways to experience the mechanics of how a dynamic equity fund works
is to experience it yourself by playing the Slicing Pie Card Game. The game simulates
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What’s a Dynamic Equity Split

for Startups? – Find Latest Law
April 29, 2016
7 of 19 3/29/2020 12:12 AM
[…] relative value to the various contributions from each participant.” Mike Moyer, who
literally wrote the book on dynamic equity splits, puts it this […]
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Steve James
May 11, 2016
Who decides what the relative values of each person’s contributions are? It is clear
enough that they could be decided at the outset, by agreement, or there is no
company (i.e. if someone doesn’t like the relative split that the others are proposing,
then they can simply decide not to get involved in the start-up, before they have risked
any of their time or other resources. That does not of course work beyond the
inception of the company. Say after three months someone has contributed
significantly more, or less, than their previously assigned equity split, who decides
whether they in fact actually did more or less than their share and what the new splits
should be? Are relative values reassigned periodically, say quarterly, at certain
milestones or when there has been a substantial change in relative contributions (and
who determines that)?
Share Reply to Steve James
Mike Moyer
May 11, 2016
Hi Steve,
8 of 19 3/29/2020 12:12 AM
When someone contributes to a startup company and does not get paid, they are
essentially “betting” that contribution on the future outcome of the company. The
value of that bet is equal to the fair market value of the contribution. The fair
market value of your time, for instance, is the salary you would otherwise be paid
by someone else.
Slicing Pie measures one person’s bets relative to another person’s bets.
Every day more bets are placed. Time is committed, money is spent, facilities are
used. So, every day the model adjusts to reflect a perfect split at that moment in
time.
I hope that helps!
-Mike
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How To Split Equity In A

Startup | Data section
July 16, 2016
[…] How to Use a Dynamic Equity Split Program – … – Slicing Pie is a formula that
allows founders to create a PERFECTLY FAIR equity split between founders, investors,
partners and employees. […]
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Anonn_anon
December 30, 2016
Thanks for the post. What are the ways to legally and contractually protect against
the risk of trusting one leader with 100%? Are there some common contractual
arrangements that say this leader is holding the stock in trust?
Share Reply to Anonn_anon
Mike Moyer
December 31, 2016
Yes, please take a look at: http://slicingpie.com/slicing-pie-lawyers/
10 of 19 3/29/2020 12:12 AM
Anonn_anon
January 2, 2017
Thanks!
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When Digital Companies

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March 11, 2017
[…] a worker-owned B-corporation using a dynamic equity model, we are well beyond
the hierarchal structures that characterize most businesses today. But […]
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What is a good way to

determine the equity split for
my startup? – Site Title
March 28, 2017
[…] method used to calculate input and arrive at an equity calculation is the dynamic
11 of 19 3/29/2020 12:12 AM
equity split model which rather than dividing up equity based on what people think
will happen, the equity is split […]
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What is a good way to

determine the equity split for
my startup?
March 29, 2017
[…] method used to calculate input and arrive at an equity calculation is the dynamic
equity split model which rather than dividing up equity based on what people think
will happen, the equity is split […]
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Doetan
April 28, 2017
Hi, I’ve read your book and have a question concerning contributions. If we want to
create a “startup” company doing digital printing with me and a partner on board.
First we will invest in equipment which has monthly loan payment and basic staff
which i am the funder and the partner mainly find customers and run the show. The
question is if I am already in large scale publisher of books etc (as another company)
and can move some work from there to this “startup” right away and also establish
credit line for paper/supplies on day one based on the credit of my existing company
12 of 19 3/29/2020 12:12 AM
– how should this be calculated as a contribution. The volume of the work is

significant to payoff the machines’ loan right off (keep them running) as they print out
books for the existing company (and my company then pay the “startup”) and so
makes this venture almost “risk free” in terms of finances- if the partner finds clients
(which they sure will) that money immediately becomes profit. (less staff salary etc
which is not substantial since that is minimal initally)
I understand that the slicing pie model is based on cash strapped beginning – once
the business can pay for itself then the pie freezes. But in this case since this
“startup” is taking reasonable cue from my existing business and literally get a jump
start to the point that the company right away can certainly support itself (I may
make some money contribution but minimally to support any shortfall), how should I
offer fair equity for the partner who is just a willing soul to work with me (but no
money) while I mainly help by providing leverage from my existing business in
described nature which is substantial as it saves the “startup” tonnes of time
scrambling to make ends meet initially. Thanks
Share Reply to Doetan
Mike Moyer
May 1, 2017
If you are immediately able to pay all your bills with cash flow you don’t need
Slicing Pie. Slicing Pie is only used during bootstrapping.
With a cash flow positive company you can get a 409A Valuation report
(http://to.capshare.com/409a) and create a stock or options plan. Your partner
can buy into the plan with all or part of his or her salary,
13 of 19 3/29/2020 12:12 AM
When Digital Companies

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Jungle – CYNTHIA TINA
June 19, 2017
[…] a worker-owned B-corporation using a dynamic equity model, we are well beyond
the hierarchal structures that characterize most businesses today. But […]
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Gary Lee
August 16, 2017
Hi Mike, thanks for sharing. Can I ask a question? If there are 2 Founders, A and B.
What if Founder A is initially working full-time for the business and in later stage he
decides to work part time and he may go absent for a few weeks. How do you
calculate his part time and absence scenarios in order to be fair to Founder B. Please
advice. Thank you.
Share Reply to Gary Lee
Mike Moyer
August 16, 2017
14 of 19 3/29/2020 12:12 AM
Hi Gary,
Slicing Pie is ideal for this situation. The model is based on the fair market value
of the actual inputs made by each contributor. It uses a fictional unit, called a
“Slice” to account for these inputs. A person’s share is their slices/all slices upon
termination of the model at breakeven or Series A. If inputs go down or stop, the
number of slices a person is accumulating also goes down or stops. So, A is
accumulating fewer slices. If A is not doing his or her job, he or she may get fired
and, therefore, lose all or part of their slices.
This situation is exactly what Slicing Pie is for. It’s all covered in The Slicing Pie
Handbook: http://amzn.to/2vE5qrB
Alok
September 26, 2017
we are starting a new business. Total of 8 founding partners. There is a clear

distinction between seniority of various people
(tier 1 : 3 people (partners),
tier 2: 3 people and
tier 3: 2 people).
Right now the we are discussing the equity split as static tier 1, 25% each, tier 2: 10%
each and tier 3: (4% + 3%) )
I feel like people in tier 3 are not getting compensated fairly and they should be
rewarded more. We are planning to split the profits by the equity share.
15 of 19 3/29/2020 12:12 AM
What I proposed to the team is that the profit share is variable and depends on the
absolute value of the profits. For example, for small profit ($100,000) the bonus split
is in the same ratio as above but as the profit increases.. ( say large profit of
$1,000,000), the share of tier 1 people reduces to 20% and share of tier to increases to
15% tier 3 people will increase to approx 10%.) My idea behind this is that smaller
percentage of small amount will not matter, but for a large amount tier 1 getting 7x of
a very large amount compared to tier 3 doesn’t seem fair to me.
Is this something people have discussed before? A linear variable in the profit split
depending on the absolute value of the profit. What are your thoughts on this?
Share Reply to Alok
Mike Moyer
September 26, 2017
Alok,
Don’t do this. It will backfire. Use the Slicing Pie model as explained in The Slicing
Pie Handbook (http://amzn.to/2yEUnOk). Differences in seniority will be reflected
in each person’s fair market salary. “Profits” is a tricky concept because you will
only be profitable after breakeven which implies you will also be paying salaries.
In Slicing Pie you can easily distribute lump sum payments of cash as it becomes
available.
Slicing Pie will solve 100% of this problem. What you are describing will definitely
not work even if you can get people to agree to it.
If you want to talk in detail about how to do this you can set up a call with me
here: clarity.fm/mikemoyer
16 of 19 3/29/2020 12:12 AM
-Miike
Alok
September 27, 2017
I just bought the book. Will explore in next few days. I belong to Tier 3. If there
is a large profit, then i dont want tier 1 guys to make 6.5x of my share. That
will be way too much and not fair. I want to increase my bonus share if there is
a large pie to slice… (increase relatively). For small size pie, i dont mind
smaller share.
I guess it will take few days for me to finish the book. If you want to discuss it
before that, I am more than happy to contact.
Share Reply to Alok
Mike Moyer
September 27, 2017
The lower you are in the organization the more likely you will not get your
fair share. Slicing Pie won’t let that happen!
17 of 19 3/29/2020 12:12 AM
Sam Soueid
December 2, 2017
Hi – I was wondering how you would treat overtime above 2000hrs/annum when the
individual is engaged in a part payment part equity arrangement.
Share Reply to Sam Soueid
Mike Moyer
December 4, 2017
Hi Sam,
Startups include people with many different levels of commitment. Those who
work fewer hours will get fewer slices than those working more hours as long as
they have the same fair market value. In Slicing Pie, you can track by hours by
week or any other way you want. If you’re using hours you’ll get a more accurate
record of how many hours someone is working and give them pie to reflect their
work. If someone is working 80 hours per week, for instance, they would actually
earn 4000 hour’s worth of slices in a year. If someone is working part-time, it
would be unlikely that they would exceed 2000 hours.
If you’re dealing with employee who qualifies for overtime payments you will have
to add additional hours to compensate them. There is no built-in function for the
Pie Slicer.
-Mike
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18 of 19 3/29/2020 12:12 AM
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How to Use a Dynamic Equity Split Program So Everyone Gets What They Deserve - Slicing Pie https://slicingpie.com/how-to-use-a-dynamic-equity-split-program-so-everyone-gets-what-they-...

LEARN SLICING PIE LAWYERS & CONTRACTS SOFTWARE LOGIN BLOG

How to Use a Dynamic Equity Split Program Search:

Check out the Online Pie Slicer

u The Grunt Fund

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Grunt Fund (Non) Cheat Sheet The Idiot’s Advantage

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Equity Splits in Start-up

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Dynamic Equity Split |

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The Formula for the Perfect

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Startup Equity Game | Slicing

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backlink Site List 2016

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What’s a Dynamic Equity Split

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I hope that helps!

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[…] Read More here: slicingpie.com/how-to-use-a-dynamic-equity-split-program-

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How To Split Equity In A

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– how should this be calculated as a contribution. The volume of the work is

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we are starting a new business. Total of 8 founding partners. There is a clear

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