Some Basics

\(Your\ Share\ \left(\%\right)=\frac{Adjusted\ FMV\ of\ your\ Contribution}{Total\ Adjusted\ FMV}\)
\(Your\ Share\ \left(\%\right)\ =\ \frac{What\ you\ put\ at\ risk}{Everything\ that's\ at\ risk}\)
The basis for fixed split allocations are industry trends, guesses about future value, advice from well-meaning advisors or negotiation skills.
The hard part about fixed splits is unwinding them when you realize you've made a mistake.

Allocation Framework

\(Individual's\ Share\ \left(\%\right)\ =\ \frac{Individual's\ Slices}{Total\ Slices\ of\ all\ Participants}\)

Calculations

Cash Contributions

\(Slices\ =\ FMV\cdot Cash\ Multiplier\)
The FMV of cash is the amount of cash spent. If the cash isn't spent, it's not at risk and just sitting in a bank. Slices get allocated when the cash gets spent.

The Well

Unreimbursed Expenses

Loans and Credit Cards

\(FMV\ =\ Amount\ of\ Cash\ Spent\)

Supplies & Equipment

\(Slices\ =\ \left(PRICE\ PAID\cdot Cash\ Multiplier\right)\)
\(<1yr\ =Slices\ =\ PRICE\ Paid\cdot NonCash\ Multiplier\)
\(>1yr\ =Slices\ =\ Resale\ PRICE\cdot NonCash\ Multiplier\)

Non-Cash Contributions

\(Slices\ =\ FMV\ of\ Contribution\ \cdot2\)

Time

\(Annual\ Hourly\ Rate\ \left(AHR\right)\ =\ \frac{Annual\ Salary}{2000}\)
the 2000 is assuming a 40hr week across 50 weeks and 2 week vacation.
Open Vacation Policy is recommended where people can take as much time off as they need as long as their work is getting done. This not only treats people like adults who can manage their own time, but it also avoids the problem of managing slices for paid time off.

Built-in Incentives

Overtime

\(FMV\ of\ Time\ =\ Hrs\cdot Hourly\ Rate\ \left(plus\ Overtime,\ if\ applicable\right)\)
\(Slices\ per\ hour\ =Hourly\ Rate\cdot NonCash\ Multiplier\)

Value

Raises and Incentives

A good bonus program should be tied to company performance. A bonus program may not make sense for a company that isn't making money.

Contractor Time

  1. Month 1 - 100% Buyout
  2. Month 2 - 109% Buyout
  3. Month 3- 118% Buyout
  4. Month 4- 127% Buyout
  5. Month 5- 136% Buyout
  6. Month 6- 145% Buyout
  7. Month 7- 155% Buyout
  8. Month 8- 164% Buyout
  9. Month 9- 173% Buyout
  10. Month 10- 182% Buyout
  11. Month 11- 191% Buyout
  12. Month 12 - 200% Buyout
\(FMV\ of\ Time\ =\ Hrs\cdot Rate\)
The fair market srate calculated above is for calculating slices, not the buyout price.

Ideas

\(FMV\ of\ Ideas\ =\ Royalty\ Rate\cdot Revenue\ Generated\ from\ Ideas\)

Relationships

Customers

\(FMV\ =\ Revenue\cdot Commision\ Rate\ \left(\%\right)\)

Investors

\(FMV\ =\ \left(First\ Million\cdot5\%\right)+\left(The\ Rest\cdot2.5\%\right)\)

Employees

Facilities

It's important to note that the startup should only pay (in slices) for the space that is needed for the startup. If the landlord gives them 20 offices and they only need four, they should only have to pay for four.
\(FMV\ =\ Market\ Rate\ Rent\ of\ Space\ Used\)
To calculate slices contributed from non-cash contributions, determine the fair market value of the contribution and multiply by the non-cash multiplier.

Recovery Framework

Nature of Separation

"Fired for Good Reason" might be called "Terminated for Cause", for instance. In the UK the terms "Good Leaver" and "Bad Leaver" are common.

Fired for Good Reason

Fired for No Good Reason

There are a number of reasons a person would be fired for no good reason, including a change in strategy, reduction in force, elimination of redundant position, or "just because". Most jobs (at least in the US) are considered "at will", meaning the company can fire anyone, for any reason, at any time.

Resigned for Good Reason

Leaving a company for good reason is essentially the same as being fired for no good reason. The employee gets to keep all their slices. The company can offer to buy back the slices for an amount of cash equal to the outstanding slices, but the employee shouldn't be obligated to sell. They shouldn't be asked to agree to a non-compete.

Resigned for No Good Reason

This is the same consequence as being fired for good reason. If employees make choices that adversely impact the company, they have to suffer the consequences.

Loyal Employees

Buyout Price

On-The-Job Buyouts

Employee Requests

Claw Back

Caveats

Advisory Board Members

Investors

Contractors

Rent and Royalties

A claw back provision should be included with any sale that allows the employee to benefit from the full price of the shares in the event the company is sold at a higher price within a year.

Freezing the Pie

The Slicing Pie model is best suited for early-stage companies who don't have much cash.