The Slicing Pie Handbook: Perfectly Fair Equity Splits for Bootstrapped Startups (Mike Moyer's Virtual Dojo)

by Mike Moyer

A “slice” is a fictional unit of measure that allows entrepreneurs to allocate a percentage of the pie based on observable values instead of guesses about the future. Slices reflect what someone would get paid for the same contribution to another company that could pay and a multiplier/normalizer that reflects the high risk of never getting paid at all. A company uses slices when it can’t pay cash. There are two steps to allocate equity, or profit sharing, in your business. First, convert contributions to slices: Slices = Fair Market Value x Multiplier (Cash or Non-Cash) Because cash is more difficult to come by than other types of contributions, I recommend a cash multiplier of four (4x) and a non-cash multiplier of two (2x). Next, apply this formula which will tell you an individual’s contribution relative to other contributors. The model is dynamic, so it adjusts over time to make sure that at any given time, everyone always has what they deserve no matter what changes. There’s really not much to it. The formula simply calculates one person’s risk relative to the others. Most of this book is about converting to slices using fair market value.