Equity distribution · Lawyer

How do you explain the slicing pie model to a lawyer?

Shingai Samudzi

March 12th, 2015

My cofounder typically vets any contracts that are drawn up with a personal lawyer. We started out with a fixed equity split, but we agreed in principle to move to a dynamic equity split a la Slicing Pie. I worked with a slicing pie lawyer to have a slicing pie boilerplate drawn up. My cofounder's lawyer conceptually just doesn't seem to grasp what's going on at all, and his influence over my cofounder is such that my cofounder is starting to doubt dynamic equity splits altogether.

Has anyone encountered this type of scenario? How have you dealt with attorneys who are clueless about dynamic equity splits?

Mike Moyer

January 23rd, 2017

In my experience, as the inventor of Slicing Pie, many lawyers who are used to doing traditional splits get easily confused about Slicing Pie because they think of it as a variable compensation program that issues shares in lieu of cash. In their minds, this opens up a legal and tax can of worms.


Rest assured that ALL issues are easily addressed and you can find smart Slicing Pie lawyers and contract examples at http://slicingpie.com/slicing-pie-contracts-and-lawyers/


When you explain it, I find that a gambling analogy works well:


Think of the startup as a gamble. The winnings come in the form of profits or the proceeds of a sale. There is no way to know if you will win, when you will win or how much you will win. So, trying to split up the winnings (equity) based on future profits or value is pointless. The only thing you can actually know is what bets were placed.


When people contribute to a startup and don't get paid, they are betting the fair market value of their contribution on the future of the startup. Betting continues until the company reaches breakeven or Series A financing.


Slicing Pie bases the split on the bets placed, not on the future winnings. So, each person gets a share of equity that reflects their share of the bets.


Any other way of splitting equity is unfair and foolish.


LLCs provide flexibility in the allocation of profit and loss. C-Corps can issue restricted shares and use Slicing Pie as the vesting program upon termination. It's pretty straightforward.


If you have a lawyer who is willing to learn the model, put them in touch with me directly and I will walk them through the details and provide materials at no cost. They should not charge you for talking to me and learning the model because they can apply what they learn and make money with it. There are entire law firms who focus on Slicing Pie deals.


If you use this analogy and they still cross their eyes you may have to find another lawyer!

Robert Clegg

March 13th, 2015

Shingai, you still need an attorney that represents the corporation and not the founders. What you draw up may not be legally binding if you don't do this correctly.

The attorney MUST notify each party that the attorney represents the corporation and not them individually. You must be represented by outside counsel or wave that right. It is KEY that the corporate attorney notify you as such.

This is one of the fist "ah ha" moments of shock an entrepreneur has when the attorney(s) explain to him/her that they represent the company and not him/her.

If your attorney hasn't done this, you probably need to find another.

Eric Wold

March 12th, 2015

I have dealt with attorneys who are clueless about dynamic equity splits by:
  • Using initial generic documents they provided and doing my own edits.  Maybe that's not for everybody, but if you've studied contract law, or just have a decent amount of common sense.. it works quite well for me.
  • Creating a structure where a fixed block of shares will be awarded at certain milestones, usually a calendar quarter.  The shares up for grabs will be split for that period as determined by billable contributions made by the eligible participants.

That second part especially seems to be a bit easier to grasp for some lawyers.

Shingai Samudzi

March 13th, 2015

Thanks all, for the responses.  My cofounder and I had a good heart to heart meeting.  He stated that he trusted my intentions based on our past experience together and would discount his personal attorney's confusion.  We're going ahead with slicing pie.

Robert Clegg

March 12th, 2015

Which lawyer represents the company?

Robert Clegg

March 13th, 2015

Pillsbury, Wilson Sonsini.  Best if you go to one of the startup events or programs sponsored by a law firm in the area. if you are part of an accelerator you can get a good introduction as well.


Shingai Samudzi

March 13th, 2015

@Robert that makes sense.  Would you happen to have any recommendations for startup friendly lawyers in the Bay Area?