Slicing Pie: Fund Your Company Without Funds

by Mike Moyer

Slicing Pie outlines a simple process to get your business started even if you don’t have a lot of cash. In the early days you can use equity to get the things you need to start your company including help, equipment, supplies, rent and even credit.
 
Slicing Pie explains how to calculate the fair amount of equity to the right people. Learn the tricks of the trade including:
 
- Calculating a theoretical value of your company
- Assigning value to the various inputs to your business
- What to do when a founder leaves your company
- How to handle equity when you have to fire someone
 
This unique guide answers the tough questions for budding entrepreneurs and helps make sure they get started on the right foot.

Genres: Business, Entrepreneurship, Nonfiction, Leadership, Finance, Self Help, Reference

218 pages, Kindle Edition

First published January 1, 2012

About the author

Mike is a career entrepreneur and investor who has started and run companies in a variety of industries ranging from clothing manufacturing to marketing technology. Today he runs Slicing Pie, a SaaS company that helps startup founders create perfectly fair equity splits, and MosquitOasis that makes pop-up mosquito net tents for kids.

He teaches entrepreneurship at Northwestern University and has held other faculty appointments at the University of Chicago Booth School of Business and MIT. He has written eight books with a focus on business and entrepreneurship including Pitch Ninja, The Slicing Pie Handbook, and Will Work for Pie.

He has an MS in integrated marketing from Northwestern University and an MBA from the University of Chicago. He lives in Lake Forest, Illinois with his wife and three kids.

Reviews

[Mike Moyer · Rating 5 out of 5]

I wrote this book- is it okay to leave my own review??

I've written several books and this one is my favorite. It's easy to ready and very actionable. I wrote it to manage my own startup deals and decided to put it on Amazon. I've been overjoyed at how quickly it has been adopted by startups all over the world.

I try to make myself available to readers through my site. There is a chat feature that is available when I'm sitting at my desk. Feel free to drop by: http://www.slicingpie.com

[Marshall · Rating 5 out of 5]

I felt grateful to have read this book. It’s timely, it’s life-changing, and I believe dynamic equity split is the future of startup equity strategy. Above all, doing start-up is a fun experience, doing start-up with right people is essential, and doing start-up with fairness and integrity as foundation makes the journey much more enjoyable.

One of the best takeaways (amongst many others) from the book:

When we look at the world through only the legal lens we often overlook what is the right moral choice. Pie isn’t equity, it’s a promise. Promises should be kept.

Great quotes

Equity in the business will ultimately reward us for our individual contributions to success, when we get there. So dividing the equity fairly is critical. We need a few rules. The reason we need these rules is simple: Fairness is More Fun.

Success means you do right by those who believed in you. Hopefully, at the end of your start-up, you all will laugh so hard that $ 100 bills squirt out your nose. But even if $ 100 bills don’t squirt out your nose you can all get up, dust each other off, and do it again— this time older and wiser. Slicing Pie is a short book about doing right by those who believe in you.

Equity in your start-up company can be used to pay employees, hire consultants, buy supplies and even pay rent. However, because it has no real value you will have to (1) convince people that it will have a lot of value in the future and (2) provide a logical explanation of how you calculated the amount of equity you are giving them.

In many cases burning a fellow entrepreneur isn’t intentional; it is a byproduct of ignorance rather than a product of arrogance.

Being an entrepreneur requires a great amount of trust and confidence. It requires bold moves and big ideas that change the way people think about life. When entrepreneurs become less confident and less trusting effectiveness diminishes. When they get burned by their partners they do learn, but they learn bad lessons. They learn to spend more time covering their own butts. They learn to spend more time and money writing contracts and agreements. They learn to move more slowly and take fewer risks. They learn to be less like entrepreneurs and more like everyone else.

When two or more people form a partnership it is because they want to share the risk of a new venture. If I hire you to clean my house, we are not partners. I am your employer and you are my employee. If I ask you to be my partner it implies we are going to work together in some way to build value and reap the benefits later on. For instance, I can partner with you to clean someone else’s house and we can split the money somehow.

If you remember nothing from this book, remember this: all pies, and therefore equity, are worth nothing when they are first created. Pies are essentially ideas and ideas are pretty much worthless in the beginning.

At any given time, your company is worth whatever you can sell it for.

At the end of the day, the cash value of your equity is much more interesting than your percent ownership. Notice that while your percentage is shrinking, your wealth is growing.

Grunts are a fountain of ideas for products, ideas for marketing, ideas for sales, ideas for operations. Good employees come to the table with lots and lots of good ideas.

When employees give up and stay, the environment becomes plagued with resentment and low morale. Trust me when I say that these emotions are start-up killers.

The most common mistake entrepreneurs make is slicing the pie before it is baked. In my experience this is what about 90% of people do. They “do the deal” with one another up front because they think it will avoid arguments later on. This is rarely the case. There is always an argument. It may be one-sided and you may never hear about it because the other person left in a huff.

Along with vesting, it is customary for businesses to use options rather than actual equity. Options allow the Grunt to reap the financial rewards associated with equity, but avoid some of the tax implications. When you use options you are essentially keeping track of how you will slice the pie when it’s time to eat. It keeps the pie whole and it keeps your knife clean.

Appoint a Grunt leader Assign a theoretical relative value of the ingredients provided by the various Grunts

Whenever anyone wants to know how the pie is sliced they can ask the leader to perform this cute little calculation for each Grunt:

Contribution of Individual Grunt ÷ Total Contributions from All Grunts = Individual Grunt’s Percent of the Pie

You can do this every day, once a month or whenever you feel like it. This is a rolling pie-slicing plan, meaning that everyone’s theoretical ownership will change on a regular basis. This is okay. The people who put in the most work and provide the most value to the organization will have more pie relative to the others.

On that same note, don’t form a Grunt Fund unless you are a trustworthy person with a genuine interest in treating people fairly.

Time is pretty much the main contribution of Grunts. It is also the most important contribution. Ideas are nothing without people willing to put the time in to turn it into a company with paying customers.

Determining the value of a person’s time, however, can be difficult because people often think they are worth more or less than they actually are. The best way is to determine a realistic opportunity cost for their time. Find out what they could earn somewhere else at a similar job (if they could get the job). Getting the number “right” is less important than making sure it’s fair relative to other Grunts.

Using a Grunt Fund, the value of an individual’s time is based on whatever salary you would have paid them if you had the cash (this is their opportunity cost) times two. You double the amount because they are assuming risk by joining an early-stage start-up.

Next, divide the number by 2000 which will help you calculate the Grunt Hourly Resource Rate (GHRR) I use 2000 hours which is 40 hours per week times 50 weeks per year. This allows for a couple of weeks’ vacation and it gives you a nice, round number to work with. Most Grunts work longer than 40 hours per week but it doesn’t really matter. What is important is that you keep it consistent from Grunt to Grunt.


All Grunts need to keep track of their hours on a regular basis. If a Grunt travels for the company you should calculate the travel time as ½ GHRR while in transit.

In the early days of a start-up founders either tend to be too generous because they desperately need the help or they tend to be too stingy because they are afraid of the future. To get it right, pretend that you have raised enough money to get your company comfortably past your breakeven point and set salaries that would make sense.

You can do this by sitting with the herd and discussing how much time it will take to reach important milestones. For instance, your developer may estimate 80 hours to complete a working prototype. The hours will be accrued only when and if the milestone is met and only up to the agreed-upon hours.

The involvement of these people can vary dramatically and they usually don’t expect to be paid, but giving them pie is fair if they are providing real value. A Grunt Fund can accommodate these people quite nicely as long as their GHRR is fair.

Put this in perspective. If you simply pay people for the contribution they provide you can keep all the pie for yourself. However, if you want to start something from nothing, you are going to have to share it. To recap, the theoretical value of a cash or cash-equivalent contribution a Grunt makes is the amount of the contribution times four.

Cash can be taken into the company as a loan to create a “Well” of money that can be drawn from as needed. Only when the money is spent will it be converted to pie. This aligns the incentives of the investor (who wants to reduce risk) and the Grunt (who wants to be smart about how they spend. With a Well, Grunts can take sips of cash when needed.

To combat against other tricks, the leader should not accept cash investments that are significantly more than the company actually needs at any given time, this will help manage the pie better and prevent abuse.

In addition to calculating the theoretical value of the intellectual property, it may be appropriate to also provide a royalty payment to the inventor. Royalties reflect the fact that without the idea the business would not be possible and that the idea itself is generating buzz or recognition for the company.

Royalty payments are generally paid based on a percent of revenue or cash receipts. Paying a royalty based on profits is not recommended because profits can be manipulated at the inventor’s expense.


Nothing is more important in the early days of a start-up’s life than an actual customer that pays its bills.

A business needs customers and, as obvious as it sounds, many start-up companies don’t have customers. They’re too busy building products, designing slick web sites, writing ads, creating business plans, negotiating legal contracts and talking to each other.

How a manager handles termination for cause provides another peek into his or her true colors. Everyone in business should be treated with respect and dignity, no matter what.

When we look at the world through only the legal lens we often overlook what is the right moral choice. Pie isn’t equity, it’s a promise. Promises should be kept.

You don’t have to bring up the Grunt Fund and the TBV with potential investors. It has no bearing on actual value, so discussing it will only complicate things. At this point in the game you want to get the best deal for you and your fellow Grunts. When the investor comes on board they will be your team member so be sure to be fair in your dealings with them as well.

The most common mistakes entrepreneurs make when allocating equity is slicing the pie before it is baked or slicing the pie after is it baked. Neither way takes into account the ever-changing needs of a fledgling business.

The world seems to be designed in a way that success is never as easy as we hope. Getting there takes not only the right vision, but also the right level of perseverance that some people just don’t have.

A key feature of any formal business structure is its ability to protect the owner’s personal assets from liabilities incurred by the company.

LLCs are a good choice for Grunt-Funded companies because they offer more overall flexibility than corporations. One of the best features of the LLC is that partners in an LLC can divide up the profits anyway they want.

A corporation is a good choice if you expect that your start-up will require significant investment in the short term. Stock in a corporation is more structured and VCs and sophisticated Angel investors often prefer this structure.

It doesn’t matter how many shares each person has, it only matters what percent they have vested. Each period you simply vest whatever is necessary to bring everyone in line.

The essential ingredient in a good pie is fairness. People deserve to be treated fairly no matter what. Greed, which is the desire to have more than you deserve, is the enemy of fairness. Gordon Gekko’s famous line “greed is good,” does not work well in a start-up environment.

The real danger is not having rules at all or not settling on them in advance. Start-ups are fast-changing environments, but not everything should change on the fly.

[Herve · Rating 5 out of 5]

An entrepreneur had contacted me about equity split between founders, employees and investors in a start-up. I mentioned my experience and related blog post on the topic. Then he came back to me with a book he advised me to read. A great read. So thanks Justin :-) The book is entitled Slicing Pie, and subtitled Funding Your Company Without Funds. Here are some examples of what I liked:

The Gap: Somewhere between the inception of your earth-changing idea and the investor presentation to Andreessen Horowitz there is a gap. During that gap, you are expected to have actually built something that resembles a business enough that the gentle and kind venture capitalist will decide that you have your act together and write you a fact check. I call it "the Gap" because it's during this time that you either fill the gap with behaviors that create a business or let is consume you and your wonderful idea. Most fledging businesses experience the latter.
The days of back-of-the-envelope deals are over. (In fact, they may never have actually existed.) Few investors are willing to provide capital to a company that is little more than a rough idea.
Nowadays, you need to have something worth investing in which often means a management team, a business plan, and, if you're smart, a working prototype. For bonus points get a few beta customers who are actually paying you. Now you have something worth discussing. [page 2]

The need for Entrepreneurs: "Entrepreneurs give security to other people; they are the generators of social welfare." The country needs entrepreneurs, the world needs entrepreneurs. Without them not much would happen. In spite of the exciting life and important role of entrepreneurs, most people never become entrepreneurs. To most people, life is too risky. Most people can't handle the ambiguity. Most people are afraid of failure. Every entrepreneur fails more often than they succeed. [pages 9-10]

Good and Bad Lessons: Failure is how an entrepreneur learns. Good lessons improve an entrepreneur chances for future success. If you created a product that nobody wants, if your employee leaves you, if a competitor comes out, if your marketing did not work, if you run out of money, you will learn. Being an entrepreneur requires a lot of trust and confidence.
But if they get burnt by partners, they learn bad lessons. They spend more time covering their own butts. They learn to move more slowly and take fewer risks. They learn to be less like entrepreneurs and more like everyone else. [pages 10-11]

Grunts: Grunts are people who are willing to forgo cash compensation in exchange for a piece of the pie. Grunts do the work necessary to turn an idea into a reality. They will do the fun work and the dirty work. They are as comfortable licking stamps as they are building a strategic plan. [page 28] (I love grunts probably because in some aspects I am one, even if not an entrepreneur!)

As a conclusion to his first chapter, author Mike Moyer claims that an entrepreneur needs a method for slicing the pie that is easy to understand and
- rewards participants for the relative value they provide,
- provides motivation for them to continue to provide more ingredients,
- allows founders to fairly add or subtract participants to or from the company,
- is flexible in the face of rapid change.

Moyer introduces the Grunt Fund as a mechanism to allocate equity between founders. He is using the classical metrics but he adds one interesting point: a dynamic allocation based on future contributions such as time and cash, weighted with your value (reputation, experience, etc). His process is simple:
- Appoint a Leader
- Assign a theoretical value to the ingredients provided by the various Grunts.
- Keep track of the contributions and calculate the possible equity whenever you need based on the relative contributions by each Grunt.

"A Grunt Fund makes some people uneasy. They like to know what they're getting into and they like the I's dotted and the T's crossed. That's fine. If this is you, then don't use a Grunt Fund - get a job instead." [Page 50] Then be careful about who and what you need. It's up to you to decide what you need, but be fair! Moyer mentions on the following page Noam Wasserman's The Founder's Dilemma (which I have not read) as a theoritical validation of his approach. Without entering too much detail, Moyer gives value to time (2x what would a normal salary be) and cash (4x the actual amount). This is subjective. The critical element is that all Grunts agree with the rules. It can change from one company to the other... "Remember, you need to compensate them for not only the work they did, but also for the risk they take." [Page 64] When it comes to ideas or intellectual property, Moyer has principles I am quite close to: "Don't get me wrong, ideas are critical to a business' success. But turning the idea into a reality is where the value is built, not in coming up with the idea in the first place." [Page 82] The Grunt Fund is for the early days only. When do you stop using it? When you have a predictable business model, or when you have raised $1M. [Page 114]

Sometimes you will need to remove someone. There are 3 possibilities:
- he/she resigns without cause. You need to reduce his slice;
- you terminate him/her without cause. The slice should be kept;
- you terminate with cause. He/she may lose the slice.
[Chapter 5 + Pages 141-145]

As a conclusion (and Moyer mentions it many times), "a Grunt Fund is a moral contract, not a legal contract. It tells us how to treat each other fairly. [...] A Grunt Fund is the foundation of a trusting relationship." [Pages 121-122]

[Silvia Mansoor · Rating 3 out of 5]

It's a decent introductory book into equity matters. However, the reader should know that the author's ideas are very atypical. Although I may be in the minority of the reviewers of this book, I personally would not recommend it to anybody. It is poorly written in terms of substance and organization. In addition, the nauseating use of analogies and childish words really seems as if he is presenting the topics to a classroom of first graders. The author is unfortunately patronizing his readers.

My primary criticisms, however, are with respect to the substance. When I read the book, at times, I felt as if I was reading a law school exam in which I had to identify all of the legal issues. I understand that the author is pushing the concept of fairness. However, if the reader follows all of the author's rules and suggestions, then the reader will likely end up getting himself, herself, or the company into legal problems down the road.

If you do read it, please do not take all of his advice blindly.

[Pablo Mejia · Rating 3 out of 5]

Ideas novedosas para personas colaborando en proyectos en una etapa muy muy temprana, donde su contribución más relevante es el tiempo invertido.

Es una metodología interesante, pero encuentro muchos retos prácticos en escalarla a equipos medianos (+20 personas) al pasar de un proyecto a una empresa, y en cumplir con las implicaciones legales que piden los inversionistas y los incentivos que esperan los empleados clave.

[Masoud Mirzamani · Rating 5 out of 5]

سهم هر نفر از کل، مساوی است با مقدار ریسک قابل اندازه‌گیری او در گذشته
اولین و آخرین اصلی که این مدل بر اساس آن نهاده شده و کل کتاب توضیحی برای این جمله است.
این ریسک، ارزش‌هایی است که فرد در اختیار شرکت می‌گذارد و بابت آن چیزی جز برشی از کیک دریافت نمی‌کند تا وقتی شرکت به سوددهی رسید یا خریداری شد، سهمش را دریافت کند.

ارزش‌ها شامل مشارکت‌های پولی، تجهیزاتی، تسلیهاتی، منابع، روابط، ایده و مهم‌تر از همه زمان است که مفصلا در کتاب برای همه‌ی این نوع مشارکت‌ها و تخصیص برش‌ها توضیحاتی ارائه شده است‌.
خلاصه‌ی آن این است که مشارکت‌ها به دو بخش اصلی نقدی و غیر نقدی تقسیم می‌شوند و این‌ها با ضرایبی نرمال‌سازی می‌شوند. ارزش‌های ارائه شده براساس قیمت‌های متعارف بازار تعیین می‌شوند. مثلا یک شخص که به عنوان توسعه‌دهنده در این تیم مشغول به فعالیت است، اگر در شرکتی مشغول به کار بود، براساس تواناییش حقوقی معادل پنج میلیون در ماه برای ۱۷۶ ساعت کار دریافت می‌کرد. این مشارکت از نوع غیرنقدی است و طبق پیشنهاد مدل، ضریب دو دارد. درنتیجه (اگر هر برش را ۱۰۰۰ تومان در نظر بگیریم) بابت هر ساعت کار ۵۶,۸۲۰ برش از کیک به او تعلق می‌گیرد. مشارکت‌های زمانی همه‌ی اعضای تیم یا مشاوران نیز به همین نحو محاسبه می‌شود. اگر همین شخص برای شرکت یک میز به قیمت یک میلیون خریداری کند، بابت این خریدش که از نوع مشارکت نقدی بوده ۴ میلیون برش (بر این فرض که مشارکت نقدی ضریب ۴ داشته باشد) دریافت می‌کند. برش‌های همه جمع می‌شوند و کسر برش‌های هر شخص بر کل برش‌ها درصد سهم او از کل شرکت را مشخص می‌کند.
همانطور که می‌بینید در این مدل تقسیم سهام به صورت پویا شکل می‌گیرد و براساس این مقدار، سهم هر نفر از شرکت می‌تواند تغییر کند.

اما این دردسرها برای چیست و چه مزیتی نسبت به سهام ثابت دارد؟
اول این که این مدل باعث می‌شود سهام کل عادلانه بین مشارکت‌کنندگان تقسیم شود.
دوم این که ارزش‌گذاری شرکت بر اساس آینده‌ای نامعلوم از بین می‌رود.
سوم این که باعث ایجاد انگیزه در اعضای تیم می‌شود و همینطور ذاتا از پاداش به افرادی که کم‌کاری می‌کنند جلوگیری می‌کند و کنترل را در اختیار کسی قرار می‌دهد که بیشترین ریسک را متقبل می‌شود (یا بیشترین مقدار ارزش را به شرکت ارائه می‌دهد).
همچنین مدل باعث شفافیت می‌شود و مذاکرات و جدل‌های درونی را بر سر سهم به حداقل می‌رساند

بهترین زمان استفاده از این مدل وقتی است که شرکت منابع مالی چندانی در اختیار ندارد و قادر به پرداخت نیست؛ درآمد ندارد یا به نقطه‌ی سر به سر نرسیده است. پیشنهاد کتاب این است که بعد از رسیدن به نقطه‌ی سر به سر یا قبل از تزریق سرمایه‌ی سری A و یا Angel، می‌توان براساس برش‌های تخصیص داده شده به اعضا، تقسیم سهام به صورت ثابت صورت گیرد زیرا از این نقطه کسی ریسکی متقبل نمی‌شود و شرکت بابت نیازهایش قادر به پرداخت وجه است.
کتاب همچنین جدای از توضیح درباره‌ی تخصیص برش‌ها، به موضوع مهم جدایی اعضا نیز می‌پردازد و چهارچوب‌هایی را برای بازیابی برش‌ها مطرح می‌کند.

اما این مدل بی‌عیب هم نیست. مثلا با این که اصل اولیه به نظر ساده می‌آید ولی اجرای آن پیچیدگی دارد و انجام آن زمان‌بر است. هرچند که مستنداتی که از این کار ایجاد می‌شود در آینده برای شرکت و سرمایه‌گذاران بسیار با ارزش و کارآمد است.
همچنین قیمت‌گذاری بر روی کار بر اساس زمان و ارزش شخص همیشه قابل اجرا و اندازه‌گیری، نشان‌دهنده‌ی ارزش کار صورت گرفته و عادلانه نیست.
به نظر می‌رسد این مدل با انجام شخصی‌سازی‌هایی برای آن، بهترین راه‌حل در این مقطع از شرکت است.

این را هم اضافه کنم که استفاده از این مدل نیاز به ایجاد قراردادهایی است که با قوانین بالادستی کشور ما در زمینه‌ی کسب و کار و تقسیم سهام تناقضی نداشته باشد.
تیم خوش‌ذوق استارتاپ درس کاکائو، این کتاب را به فارسی ترجمه کرده و می‌توانید در این آدرس آن را مطالعه کنید. همچنین آن‌ها در حال تدوین قراردادهای استفاده از این مدل با توجه به قوانین ایران هستند که در آینده منتشر خواهد شد.

مایک مویر Mike Moyer، نویسنده و بنا کننده‌ی این مدل، وب‌سایتی را نیز برای انجام این فرآیند راه‌اندازی کرده است. همچنین در نسخه‌ی ساده‌تر آن صفحه گسترده‌ای را نیز در اختیار همگان قرار داده که از همان وب‌سایت قابل دریافت است.

[Karl Sjogren · Rating 5 out of 5]

In my forthcoming book, The Fairshare Model, I highlight Mike Moyer's Slicing Pie approach for allocating employee ownership in a company. It presents a logical way for entrepreneurial teams to fairly allocate ownership interests. This is hard to do if it is done before the value of an employee's contribution is known--a static equity setting. Slicing Pie provides a framework for a private company to do it on a rolling basis and in an open manner--a dynamic equity setting.

The Fairshare Model applies dynamic equity setting to a company that raises venture capital via an initial public offering. It presents way to balance and align the interests of investors and employees as a group. It was conceived to deal with the uncertainty involved in establishing a value for a venture-stage company. There are ways to mitigate the risk of getting it wrong in a private offering, deal terms. But there is no equivalent in an IPO. The Fairshare Model changes that with a deal structure that places no value on future performance. It does that by providing shares for future performance that vote but cannot trade (I call it Performance Stock), that convert into the tradable stock based on performance milestones.

I anticipate that companies that use the Fairshare Model will use the Slicing Pie approach to determine how to allocate interests in their Performance Stock.

[Katherine · Rating 5 out of 5]

Excellent resource for people starting a company! It's a clear formula that allows everyone involved in setting up a business to feel that their contribution is valued fairly. The advice is straightforward and he covers lots of different situations (i.e. if someone leaves the business). It's going to be our handbook until we're operating and making some sales!

[Tom De Kooning · Rating 4 out of 5]

Helpful structure to base your equity split on, for bootstrapping startups!

[Jamal Mashal · Rating 5 out of 5]

Every founder and entrepreneur should read this one.
Great book

[Athan Tolis · Rating 4 out of 5]

Getting to my Series A (or so I hope) and decided to buy this to help me determine if everybody’s going in at a fair percent.

“Everybody” in our case is exactly two people, which makes it easy, but we’ve been going some time now and we’ve made all sorts of different types of contributions.

Even for us, I find the book simplistic.

So I’ve done this business before, twice (one and a half times, more like) and my partner is merely coding my ideas, since I can’t code for s**t. I’m not saying this confers to me any amazing rights, all I’m saying is I could not find our situation described anywhere in the book.

Also, if we do a Series A, it will be entirely because I know people who have done it before and in particular some who have backed me before. It’s not the first time I’m starting a company. There’s tons of good people out there, but to get funded it is better to have connections and a track record.

Again, there is no chapter to discuss the value of those contributions.

So it’s mega simplistic.

Regardless, I can totally see that the method described here is a colossal improvement on a handshake deal or on equal splits or whatever. I say this from experience, as I still do not speak to my partners from a venture 15 years ago.

And by reading it you get thinking about all sorts of issues, like how money that’s in the bank is money that survived the taxman and your living expenses and is worth “twice” money that is foregone income. Or how paying for space/equipment is “twice” as valuable as supplying space/equipment that some partner happens to have spare. I also like the diagram about leavers.

Even the money thing is not perfect, though. So, supposing your aunt gave you 50k and you only end up using 30k before bringing in professionals, the book says you can give the 20k back and not count it. Not entirely fair to your friends-and-family investor. The comfort of that 20k was worth tons to you. You at the very least have to allow that money to vest alongside the Series A, and even that is harsh.

Also, you can summarize this book in, dunno, thirty pages. It is very heavily padded out.

I liked it, as I say, but I’m very happy I bought it together with many other books, so I have no idea what I paid for it. If it was the list price, I was robbed ;-)

[Luis Calixto · Rating 4 out of 5]

Mis Apuntes-

Este libro es una guia practica y efectiva para saber repartir capital de acuerdo al nivel de trabajo que se ha puesto y como saber determinarlo. Esto sirve para saber cuanto capital (que puede valer cero al inicio) hay que repartir. Las piezas del pie, asi como el pie mismo incrementan en valor conforme va aumentando el valor mismo del contenido del pie.

La historia la sabemos todos: un grupo de emprendedores deciden tener esa la conversación de a quien le toca que basado en la creatividad de la idea original, las habilidades de desarrollo del producto y el tiempo invertido. En cierto punto los malentendidos pasan y siempre hay problemas que significan la ruptura final de la empresa. Como evitar eso es el proposito del libro.

Emprender es un proceso de aprendizaje, emprender e saber determinar las necesidades de los clientes o aprender a escucharlos mejor que la próxima vez.
Otro problema es que los emprendedores necesitan generar ideas en vez de estar haciendo contratos, defendiéndose de otros socios y quemándose activamente.

Emprender es agregar valor, emprender es querer solucionar un problema. La dificultad es que más emprendedores fracasan que aquellos que tienen éxito.

Cuándo se crea una compañía, el problema principal radica en convencer a otras personas de trabajar gratis antes de poder sacar los beneficios de ese trabajo. El mayor problema recae en convencer a los primeros empleados y saberlos motivar con algo que aún no existe.

Repartir equity es la cosa más difícil y que trae a la ruina a muchos emprendedores. Por ejemplo, lo más que tradicional sería repartir 50/50 pero en trabajo pocas veces viene hecho por igual.

Partiendo el Pie

Al inicio el pie no vale nada, comienza con una idea. Todos los pies del mundo valian nada cuando fueron creados. Desde comenzar con implementar la idea, hasta la implementacion, mercadotencia, soporte tecnico y mas. Todo eso requiere mucho trabajo y hay personas que se enamoran mas de las ideas que de la implementacion. No es hasta que las ideas son horneadas en pies que la cosa cambia.

Para determinar el valor de ciertos pies (compañias) inversonistas usan metodos diferentes.
- Flujo de fondos
- Ingresos
- Ganancias

Una vez que el pie tene valor, como un carro de perritos (hot dog stand) uno podria comenzar a pensar en estrategias de salida y vender el valor del pier basado en lo que dicta el mercado. Cuando tienes que vender parte de la compañia para pagarle a alguien - o para contratar a alguien y eso significara que aumenta el valor del pie mismo aunque se haya visto reducida tu porción. No te enfoques mucho en la pieza sino en lo que vale. Al final el valor de la equity se puede reducir pero el valor en efectivo aumenta porque el pie vale más caro que antes.

Puedes pagar con rebanadas del pastel pero no lo repartas mucho y recuerda que inversionistas quieren ver el pastel casi intacto. Es difícil convencer a personas que trabajen por pastel en vez de que por dinero en efectivo, lo mejor es relacionarse con Grunts, ellos son contentos en trabajar por la emoción de ser parte.

Los pasteles y los Grunts interactúan de esta manera:

- Tiempo e ideas
- Instalaciones, préstamos, crédito
- Otros recursos

Entre más Grunts tengamos y los tratemos justamente, mejor el proyecto e iniciativa será.
Ellos se alimentan de pastel entre otras cosas pero tratar al pastel con cuidado es la lección número 1. Sentimientos de resentimiento e injusticia pueden ser el fin del pastel mismo.

Los errores principales es querer repartir el pastel antes de hornearlo y decorar fijo su valor, dando poco incentivo a las partes minoritarias y de responsabilidad sucesiva (mercadeo, ventas, etc)
Lo mismo sucede cuando el pastel se reparte después de horneado. Para entonces, el valor de este puede atraer a personas que no tengan intención de trabajar porque los Grunts no han sido alimentados. Ya sea repartiendo estática o dinámicamente, compañías pequeñas no sobreviven el campo minado de repartir el pastel.

Si el problema es determinar valor real, podríamos empezar a determinar valor relativo y aquí la fórmula para hacer esto es:

- Recompensar a personas por el valor relativo de los ingredientes que invierten
- Da motivación a que estos sigan trayendo ingredientes de calidad
- Le permite a los fundadores quitar a añadir a personas con cierto criterio determinado.

La solución - el fondo Grunt

A este problema algo complicado, la solución es repartir el pastel durante el proceso de horneo, mientras la compañía va creciendo. Pero en vez de repartir el pastel literal uno reparte la promesa de la futura rebanada y el valor que tendrá (basado en el trabajo).

Para comenzar: pon a un líder en Grunt, asígnale un valor teorético a los ingredientes y calcula su valor de acuerdo al trabajo realizado por cada uno.
Algunas personas encuentran este modelo incómodo porque quieren saber exactamente cuanto les va a tocar. Este trabajo es ideal para los emprendedores que pueden manejar riesgo y lo ambiguo.

Algunas de las estrategias es implementar un sistema para medir las inversiones que cada uno y medirlo sea por hora (aunque en el caso de consultores no es practico) para que, aunque de algún modo no se les pague en efectivo a los colaboradores, se mida detalladamente para que no haya malentendidos. Así pues, tiempo, materiales como computadoras y experiencia se pueden tabular.

Los prestamos invertidos por los Grunts deben ser considerados con cautela y medidos de acuerdo a la formula que provee el autor. Tambien se tienen que considerar el equipo y los suministros. No abrumarse en lo pequeño que cuesta mas a la relación que las cuentas precisas. De este mismo modo, las invenciones que propician los Grunts mientras el pastel se hornea deben ser únicas y debe considerarse que las ideas, son acciones, no tienen valor y tienen que generar resultados concretos.

Las relaciones y accesos a socios también son recursos que deben ser recompensados y medidos a medida del resultado de la acción.

Una vez que el valor se ha calculado ahora basta darle un valor al pastel que sale de ese número original teórico. Lo que funciona, sin que esto quede grabado en piedra es:

- Mantenerse al corriente con el tiempo invertido
- Negociar un día al mes o a la semana para revisar esta tabulación.

Hay modos también de calibrar el trabajo invertido por Grunts y de apartar una parte del pastel a los fundadores.

Hay que también tomar en cuenta cómo se determina cuando el Grunt tiene que marcharse, ya sea que renuncie (sea con causa genuina o sin una), alguna enfermedad y muerte. Así también cuando se decide despedir a alguien.
En ocasiones hay que actuar pro-activamente antes los Grunts gordos y hacer que respeten la confianza de los demás. También hay que considerar cuando el negocio va a la quiebra, se traspasa o se cierra por completo.

En un momento, a pesar de la confianza, hay que protegerse legalizando de acuerdo al tipo de compañía que se tenga (el libro está dirigido a audiencia Estadounidense) pero en reñidas pequeñas compañías deciden no pagar mucho contadores o a abogados e invertir en Marketing y ventas.

Al final de todo, para implementar el fondo Grunt es necesario que haya confianza en crear compañías, productos y sueños en grupo.

[Dan · Rating 5 out of 5]

I've been recommending Slicing Pie all over the place, and at least 5 friends (all members of my tribe/herd) have said they are now reading it.

I found it very useful in drawing up my grunt fund for a couple of ventures that I am conducting discovery on & it answered almost all my initial questions about dynamic equity splitting. The chapter on Shark Lake LLC was highly enlightening for 3rd party ventures too.

I enjoyed the book so much, that I wrote to Mike to thank him for his efforts.

"Thank you very much, Mike."

"I am clearing my deck to read it today.
Thank you for writing the very specific book that I needed at this exact moment in time, for the most important of purposes, in exactly the way that I can best understand the content"

"By the way, I love you writing style -like a "casual conversation with a kindly older brother"."

"I especially like the way that you think -i thought I was the only one who thought that being fair was a requirement, not a weakness.
I noticed that yours is a great way to articulate a responsibility to a task bigger than yourself; that is 'baking pie' "

"By the way, Ive baked a few pies myself, but none haven come out just right yet-
either ive had my pies or my ingredients stolen, not left it to bake long enough, had the wrong bakers, or not enough experience in mixing the dough or the filling. "

Mike is working on a followup to this, which I look forward to.

I reckon I might have to get a bunch to give away ;-)

[Detrick DeBurr · Rating 5 out of 5]

This is one of the business books on avoiding the pitfalls of start-up entrepreneurship I have ever read. I makes a lotta sense and most of all its fair. I am encouraging every early stage entrepreneur I know to read it.

[Michael Dubakov · Rating 4 out of 5]

Quite good book, written quite poorly. Still the equity slicing model is very good. I used similar dynamic slicing in 2004 when founded Targetprocess. Worked quite well. So I definitely recommend it to any fresh startup.

[Elliot Lee · Rating 5 out of 5]

Incredible book. I really want to start and join Grunt herds now, thanks to Grunt Funds.

[Simon · Rating 2 out of 5]

This was a book for work and was not too interesting, but necessary.

[Jade Handy · Rating 5 out of 5]

A must read for anyone considering a business partnership.

[Calla · Rating 5 out of 5]

This book is a must-read for anyone looking to start a business with others and want to make sure that everyone who puts time and money into the business gets an equal return on the end results.

[Mark Armstrong · Rating 3 out of 5]

Seems like a reasonable approach, although the many requests throughout to buy additional copies of the book for employees, lawyers, accountants etc. I found a bit tacky and annoying.

[Morten · Rating 2 out of 5]

This books main point is on the website and it simply rehashes the idea over and over again.

not worth the buy - but the methodology presented is solid

[Zdenek Sykora · Rating 4 out of 5]

Slicing Pie: Funding Your Business Without Funds by Mike Moyer provides an innovative framework for equitably dividing equity among startup founders and contributors. The book introduces the "Grunt Fund," a dynamic equity split model that adapts to the changing contributions of each participant. Moyer explains how to fairly allocate equity based on the relative risk and value of each person's input. The method ensures that those who contribute more receive a proportionate share of the company, preventing disputes and fostering a collaborative spirit. Slicing Pie is a practical guide for startups looking to avoid common equity division pitfalls and maintain fairness as the business evolves.

Summary

Slicing Pie: Funding Your Business Without Funds by Mike Moyer offers a revolutionary approach to dividing equity in startups, addressing the common pitfalls and disputes that arise from traditional equity splits. The book introduces the concept of the "Grunt Fund," a dynamic and fair equity split model that adjusts according to the contributions of each participant. Moyer’s method ensures that those who contribute more to the startup receive a proportionate share of equity, reflecting the actual risk and value of their input.
The book starts by challenging the conventional fixed equity split approach, which often leads to disputes and feelings of unfairness among team members. Instead, Moyer advocates for a dynamic equity split that evolves with the business. This approach not only maintains fairness but also adapts to the changing contributions of team members over time.
Central to Moyer's framework is the Grunt Fund, which assigns equity based on the relative risk and value of each person's contributions. This includes time, money, ideas, relationships, and other resources. By quantifying contributions and their associated risks, the Grunt Fund ensures that equity distribution is transparent and just.
Moyer emphasizes the importance of fairness in allocation, highlighting that contributors should receive equity in proportion to their input. This approach mitigates the risk of conflicts and ensures that all team members feel valued and fairly compensated for their efforts.
Another key aspect of the Slicing Pie model is its ability to balance risk and reward. Contributors who take on more risk, whether through financial investment or time commitment, are rewarded with a greater share of equity. This balance motivates team members to invest more in the startup, knowing that their contributions will be fairly recognized.
The book also addresses the scalability and adaptability of the slicing pie model. As the startup grows and new contributors join, the model can be adjusted to reflect the evolving nature of contributions and risks. This flexibility ensures that the equity split remains fair and relevant at all stages of the business.

In summary, Slicing Pie is a comprehensive guide for startups seeking a fair and dynamic way to divide equity. Mike Moyer's Grunt Fund model offers a practical solution to common equity distribution challenges, fostering a collaborative and motivated team environment.

The Seven Big Ideas

1. Dynamic Equity Splits: Equity should be divided based on actual contributions rather than fixed percentages.
2. Grunt Fund Model: A framework that adjusts equity shares according to the value and risk taken by each contributor.
3. Fairness in Allocation: Equity is allocated fairly by assessing the relative importance and effort of each participant's contribution.
4. Risk and Reward Balance: The model accounts for the risk undertaken by each contributor, ensuring fair compensation.
5. Preventing Disputes: A transparent, adaptable equity model helps prevent conflicts among team members.
6. Collaboration and Motivation: Equitable equity distribution fosters a collaborative environment and motivates contributors.
7. Scalability and Adaptability: The Slicing Pie model can be scaled and adapted as the business grows and contributions change.

Slicing Pie by Mike Moyer is an invaluable resource for entrepreneurs looking to build a fair and motivated team. Its dynamic approach to equity distribution ensures that every contributor is justly rewarded, promoting harmony and productivity within the startup.

[Jacek Królikowski · Rating 3 out of 5]

Ideally I'd give it 3.5 stars.

The good thing about the book is that it gives some common sense heuristics that can help you with having a conversation around equity. It systematizes some ideas you might have around valuing people's time and the risk they take. It's short enough that it can be read and memorized in an afternoon - good stuff.

On the other hand the system it proposes is hard to directly fit into how a limited company is set up by law (at least in the jurisdictions I'm familiar with). The author's advice is to find a lawyer willing to fit the square peg of Grunt Fund into the round hole of a limited company - how you do it is up to you.

In other places the author's assumptions are simplistic, impractical, or self-serving: "you don't need a legal agreement before your first $1m investment!", "you don't need to make any legally binding contracts, just work with people you know you can trust!", "if someone doesn't want to lose equity according to a new iteration of the Grunt Fund structure you come up with, they're an asshole, just fire them!", "buy every person involved a copy of my book, if they're not convinced they're a bad person anyways!".

Just like the person I borrowed the book from told me - it has some good ideas, but it's not realistic to implement what it suggests directly. Pick and choose the ideas that make sense to you and hopefully you'll come up with a system that's good enough.

edit: The metaphor of "before the pie is baked" and "after the pie is baked" is very vague and inaccurate in a context of a company (which is never really "done" unless it goes under) - the author seems really proud of it, but never bothers to fully explain it.

[Rob Tsai · Rating 5 out of 5]

I found this a truly enlightening book that addresses the issues of fairness when deciding how to allocate "slices" or pieces of the pie in an early stage bootstrapped endeavor. When people are contributing time, expertise, code, planning, connections, etc. - how do you keep track of all the changing commitments and contributions in a fair manner.

I've never seen this used in practice, but I'm curious to hear case studies of people who did it.

Or, imagine if some notable entrepreneurs had a do-over, and reimagined the early capitalization of their companies using the Slicing The Pie method. How much of Facebook would Zuckerberg (or Hughes or Savarin have owned?). How much of Microsoft would Gates have owned? How much of Amazon would Bezos have owned?

In reality, while Moyer suggests a 2x multiplier of non-cash contributions (ie working for sweat equity) and a 4x multiplier for cash contributions (ie nonreimbursed expenses), I'm curious what the real world typically rewards by way of stock allocation. While I wish it were neat and tidy like this, I suspect the real world mostly values superstars and capital over individual contributors. We see it in late stage companies for sure with CEOs extracting cozy paydays from crony boards. Is it the same in early stage company formation? People with access to capital and connections end up with all the pie?

[Victor · Rating 4 out of 5]

This book answers one of the first questions each co-founder faces: how to split shares that cost nothing?
This book is easy to read and answers the question quite well. It is definitely beneficial to read if you intend to split the shares FAIR. And the main idea is to use a form of Dynamic Equity Split, named Grunt Fund, and divide the shares as you go based on contributions.
In the book, you'll find only ONE approach, though open to customizations, which could be a good starting point, but I found it limited.
The biggest drawback for me is to count contributions based on time spent. Yes, you rate the time based on expertise and it is a simple idea to explain, BUT, is the result that matters, not time spent. Of course, you can make adjustments to reward those who bring better results but facilitating commitment over results, particularly for co-founders I found questionable.
Another drawback is the author's suggestion to hand over a copy of his book to everyone you want to work with. And you get this suggestion again, and again, and again... and again... and one more time...

A definitely good book to read, but I am somehow left with an aftertaste that I need to read more books on the topic to have a comprehensive answer to the initial question.

[Antony · Rating 4 out of 5]

Starting a venture is an exciting and demanding time. The participants need to be fully-focused on bootstrapping the business, but all too often internal conflicts arise due to lack of clarity on dividing "the pie" (equity).

Slicing Pie does a great job of providing a fair, transparent system to divide the pie, taking into account various relevant factors. Applying its principles should minimize distractions and disagreements, and leave the founders to concentrate on building the product and the funnel.

It's a short, light read, and doesn't over-complicate matters, unlike many business books which repeat themselves in order to seem smarter than they are. The case studies are also useful.

A must-read for co-founders, surely destined to become a classic. I knocked off a star because it's been / being superceded by the "Slicing Pie Handbook", and it's not clear when purchasing, that this is the older volume.

[Miles Kemp · Rating 5 out of 5]

"Slicing Pie: Funding Your Business Without Funds" offers a revolutionary approach to equity distribution in startups, providing a fair and dynamic model for collaborators to build and benefit from a company's success together. This method, which I've successfully applied across multiple ventures, transforms how equity is viewed and allocated, ensuring that contributions are accurately reflected in ownership stakes. The book serves as a comprehensive manual, detailing the processes of earning and distributing equity in a way that preempts costly legal and financial disputes down the line. Its insights are indispensable for anyone looking to start or manage a business in a collaborative, equitable fashion. "Slicing Pie" is not just a read; it's a practical toolkit for fostering a harmonious business environment where everyone's hard work is fairly rewarded.

[Mike Guzowski · Rating 4 out of 5]

Badzo lubię książki, które pokazują, że jest więcej niż jedno słuszne rozwiązanie. Oczywiście - nie musi być prostsze, ale sama możliwość posiadania opcji daje komfort wyboru i decyzji sposobu dostosowania się do sytuacji. Książka w praktyczny sposób przedstawia idee dynamicznych udziałów rozliczanych na końcu. Wymaga jednak bardzo skrupulatnego kontrolowania assetów jakie każdy wnosi do firmy.

Ciekawy myśli:
• Fixed split (ie 50/50) is not a best option because it may cause feel of being mistreated or fear of renegotiations. Go with dynamic split ie. jesli obaj wkladamy do firmy po 50k to jest 50/50. Ale jak w pewnym momencie wlozysz drugie 50k to bedzie 2:1 czyli nalezy Ci sie 66% (2/3)

[Saša · Rating 2 out of 5]

The overall point of the book is fine (having dynamic "equity" before investments and real equity). The execution is not. Too many things are left unsaid, the biggest one being is how to enforce "grunt pie and slices" in any legal way. Yes, fairness is promoted throughout the book but not all people are fair, that is why laws and rules exist. Also, I did not like the language used throughout the book. Often I thought how he talked about "grunts" in a bad and non-humane way. Lastly, one star is taken off for overtly trying to make us sell his book to other people and buy his other products and services.

[Darren Austin · Rating 5 out of 5]

How do you split something up that realistically has now value? That's the problem faced by founding teams who are building something from scratch. Slicing Pie is a very quick read (I ran through it in about 4 hrs) but it thoroughly explains and outlines a powerful framework for fairly allocating shares of a new business among the contributors (partners) to that business. Read this with a highlighter and sticky notes for bookmarking. Lots of valuable concepts here to refer back to later.

Best of all are the accompanying resources available at the author's website. Enabled me to put the concepts into practice in a matter of minutes.