How to fairly split the equity pie

How to fairly split the equity pie

You’ve founded a company and you want to bring on some helpers and compensate them with equity. How much equity should you give them?

Most founders pull a number out of a hat when making this decision and hope for the best. This can lead to lots of problems, especially when you give different amounts to different people. Someone who gets less than someone else might feel undervalued and lose motivation. Hurt feelings and resentments can poison the company culture.

One of my clients recently told me about an approach to this issue called Slicing Pie. Slicing Pie works by tracking everyone’s contributions of time, money, resources, etc. and does not split the equity until a trigger event, such as raising money from investors, occurs. This means that the equity you receive reflects the actual contributions you made to the company.

I recently drafted a legal agreement for Slicing Pie. The way it works is that all early company helpers receive an equal amount of equity, but the equity doesn’t vest (i.e. become truly owned by the shareholder) until a trigger event. The amount of equity that vests depends on how much time, money, and resources each helper ACTUALLY contributed before the trigger event.

This method of dividing equity makes so much more sense because everyone understands up front what they need to do to earn more equity – there is nothing arbitrary or unfair about it. It also serves as a great motivator for contribution.

To your success!

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You’ve founded a company and you want to bring on some helpers and compensate them with equity. How much equity should you give them?

Most founders pull a number out of a hat when making this decision and hope for the best. This can lead to lots of problems, especially when you give different amounts to different people. Someone who gets less than someone else might feel undervalued and lose motivation. Hurt feelings and resentments can poison the company culture.

One of my clients recently told me about an approach to this issue called Slicing Pie. Slicing Pie works by tracking everyone’s contributions of time, money, resources, etc. and does not split the equity until a trigger event, such as raising money from investors, occurs. This means that the equity you receive reflects the actual contributions you made to the company.

I recently drafted a legal agreement for Slicing Pie. The way it works is that all early company helpers receive an equal amount of equity, but the equity doesn’t vest (i.e. become truly owned by the shareholder) until a trigger event. The amount of equity that vests depends on how much time, money, and resources each helper ACTUALLY contributed before the trigger event.

This method of dividing equity makes so much more sense because everyone understands up front what they need to do to earn more equity – there is nothing arbitrary or unfair about it. It also serves as a great motivator for contribution.

To your success!

Spotlight on a Successful Social Enterprise: Equal Exchange


From the Equal Exchange YouTube channel

Financial Success and Core Values
One of my favorite examples of an organization that has been able to raise millions of dollars of capital while staying in control and true to its values is Equal Exchange.

Despite posting enviable growth, this company has successfully retained its mission to create mutually beneficial relationships between farmers and consumers and support worker democracy and fair trade throughout the world.

Try some of Equal Exchange’s teas, coffees, chocolates, and fruit. You’ll be hard pressed to find goods of this quality anywhere else, and you’ll feel awesome that what you’re consuming is good for you and good for the world.

So what’s their secret?
How has Equal Exchange been able to grow and thrive for over 25 years while maintaining its mission and values?

Equal Exchange stipulates from the outset that investors have no voting rights. Investors are sufficiently confident in the worker-owners of the company to steward its resources. And investors have never been disappointed – they have received generous dividends every year, resulting in a return that exceeds a comparable investment in the S&P 500.

Notably, Equal Exchange’s structure prevents any investor or owner from profiting from the sale of the company.

Equal Exchange’s structure and investor agreements ensure that only values-aligned investors will be interested. The controls placed shareholder participation have never proven a hurdle to gaining investment. Demand exceeds supply every time. Equal Exchange offers its preferred stock.

Values-Driven Business
Equal Exchange is not successful in spite of its commitment to its mission but because of it. A majority of investors and consumers want to do business with values-driven companies and Equal Exchange meets that demand.

There is plenty of room for more companies to do the same!

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