Slicing Pie: Funding Your Company Without Funds

Funding Your Company Without Funds

The Author

 

Mike Moyer is a professional entrepreneur who has started companies from scratch, joined start-up companies, helped others start companies, raised millions of dollars of start-up capital, and helped sell start-up companies. He has worked in a variety of industries ranging from vacuum cleaners and motorhome chassis to fine wine. 

 

Moyer says his mission in life is to make sure that every entrepreneur on the planet gets what they deserve from their company. He has an MS in Integrated Marketing Communication from Northwestern University and an MBA from the University of Chicago. Moyer also teaches entrepreneurship at both universities.

 

The Book

 

  • Who? The Slicing Pie model is best suited for startup companies that are bootstrapped during the early stages of development.

 

  • What? Slicing Pie (aka “Grunt Fund”) is a process for implementing a “dynamic” or “organic” equity split in an early-stage startup, hence making use of equity to grow the company fairly and effectively.

 

  • Why?  The split of equity among startups founders is one of the biggest make-or-break issues they face as a team. In most cases, equity splits are mostly static, and this may cause angst, destructive tension, and legal problems, like in the case of Facebook and Zipcar. Author’s advice: Never agree to a quick equity sharing just to “get it out of the way.”

 

  • How? A fair distribution among founders based on a constant re-assessment of contributions against an adjusted fair market value over time (until investors value the company). The system thus addresses additions and departures, as well as potential losses of equity.

 

Before Slicing Pie, there was no “right” method for an equity split among startups (co-) founders. The book Slicing Pie is a detailed description of a dynamic equity sharing methodology addressing the issue and focuses on allocating shared value to individual investment put in by each founder. It brings in objectivity by allowing founders to agree and regularly re-visit the worth of their contributions against the market value of the business. 

 

Moyer uses the analogy of the blackjack game, to describe the problem at hand. In the game, you bet $3 and your partner bets $1. If you win, does 50/50 sharing seem like a fair deal? Probably not. In this scenario, you deserve 75% of the winnings because you placed 75% of the bets. This is the essence of the Slicing Pie model.

 

Slicing Pie is based on a simple principle: a person’s percentage share of the company’s rewards should always be equal to that person’s percentage share of risk to attain those rewards. The method provides (co-)founders with the possibility to pay early-stage contributors with equity, based on clearly defined buyback conditions — an extremely powerful tool to accelerate growth without spending cash.

 

Slicing Pie is a dynamic model because it changes over time, as  each day brings more requests for time, expenses, facilities, supplies, and anything else the company needs to move forward. Contributors that do not get paid for their contributions are putting their contribution at risk in hopes of getting a future reward. Keeping track of these contributions requires discipline, but the benefits are enormous.

 

While the timing and the amount of future rewards are unknowable, the amount of the contributions at-risk is knowable: It is equal to the adjusted Fair Market value (AFMV) of the contribution. Hence the transformation of the usual split formula from Value of the contribution relative divided by total value into AFMV of the contribution divided by adjusted Total AFMV. 

 

The book is constructed around the concept of the slice, which is a fictional unit used to represent the AFMV of an at-risk contribution. A slice does not represent equity shares, nor does it have any actual value; it just helps calculate the right percentages. At any given time, the shares formula is the ratio of contributors’ shares relative to the total shares of all participants. 

 

Slicing Pie  also touches on one of the most disruptive events in an early-stage startup company—   the departure of team members. The book addresses the issue from different perspectives of termination (for cause and without cause) and of resignation (for good reason and for no good reason). The model allows for adjustments  in each case. 

 

For an example  from the handbook: if a contributor resigns for no good reason, the Slicing Pie model suggests that the resigning contributor bears the brunt of the cost and loses the equity earned for any intangible contributions like time. (Tangible contributions, like money and equipment, are to be treated a little differently in order to  mitigate the potential for fraud.)

 

Besides the book, www.slicingpie.com also provides tools like the “The Pie Slicer Application” to help implement the model. 
 

Keywords: Startups, Early-Stage Startups, Fundraising, Startup Fundraising, bootstrapping, Slicing Pie, Mike Moye
Startup Falcon . 2021-01-31

Related Articles