2014-01-01
How To Chop Your Founders’ Pie

We are willing to give up on 10% of the equity”, said a voice behind the telephone line. “Alright, why 10?”, I asked.

We feel that it’s the amount we are willing to give up, after all the work we have done”. “How about stepping back a bit”, I replied; “I would like to understand the responsibilities in the project a bit better, and consider the equity only after that”.

Okay, how we’ll get that understanding?”, the voice replied. Yes, how, I also wondered.

Experiences From the Past Year

During the past year, I’ve not only pivoted several startup projects, but also been trying them out with various teams.

One of the teams was lead by me (of which partial story you can read from here), while in other teams I was a member in one form or another.

Few of the projects lasted a couple of months, while the shortest tryouts were only a few days long. In many of the cases, we didn’t even get to the point of starting the equity discussion, but in those cases that we did, it would’ve been great to get some assistance.

The Hunt

So what I wanted to find was a method that a) sets objective criteria to consider the equity against, b) offers a way to iterate understanding and reach an agreement, and c) takes account varying startup team sizes.

What I found was a big list of blog posts, articles and generalisations, which wasn’t quite the thing I was looking for.

Some of the articles offered a set of Excel sheets, but as we all know, they aren’t exactly a joy to share and collaborate on. It’s already 2014, and we clearly can do better. Furthermore, some of the methods fit poorly into a sheet format.

The closest usable thing for me was foundrs.com. It has well formed criteria to consider, and a clear proposal that can be discussed.

What I wanted, however, was a way to share my proposal with my remote partners. Plain true / false options also seemed a bit too harsh for many of the answers. Understanding the formula behind the calculation was essential for me, and it certainly would be the same for anyone else that I would offer my proposal to. I needed something transparent and tweakable, please.

Enter PieChopper

Since I couldn’t find what I was looking for, I decided to create an experiment called PieChopper. It deals with the issue of transparency with open source licensing (see the source code from Github), it’s agnostic to equity sharing methods by having several of them to try out, and it makes it easy to send proposals between remote members via a simple hyperlink.

PieChopper

Copyrights

To get started with the site, I took inspiration from three of the best models that I could find. They are clearly linked to the site, and the praise for their original utility belongs to their authors, not me.

I didn’t just settle to take a plain copy from the models, but tried to improve them. For example, many of the values have improved granularity, and wording should be clearer.

While most of the site was created by me, I’ve got valuable input from many of my friends. Big thanks for them!

Call for Help

Compensation based on merits is an interesting problem. Too often the decision is made based on emotion, or the desire to keep the sense of fairness in the team.

In the former case when team members have already done some work, they have a strong feeling that they should earn more just based on the earlier contributions. In the latter case, the equal split is the norm.

Both of the approaches are wrong.

In startups, when there’s no money to pay as a salary, all you negotiate for compensation is the equity (which equals to expected future income). It makes sense to put some effort into thinking, and not to settle for an easy solution.

Previously there wasn’t really good assistance available in this area. Now there is, and with your help it can be made even better. In case you have a moment to spare, I would love to hear your feedback on the site - just send me an email and I’ll get back to you. In case you prefer to directly fix, tweak or add something, GitHub pull requests are welcome!