Founder equity · Equity distribution

"Slice The Pie" true-up?

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

October 14th, 2016

Have used "slicing the pie" to see what current equity would be for myself and two co-founding partners, based on cash and sweat to date as well as going forward through market test. Has anyone used an MOU to formalize a "true up" of equity once market test, or some other time period, has passed? Issue is that much is based on effort, which could change, including through no fault or action of each partner but due to "life". Looking for simple MOU framework that spells out this "true up". Anyone?
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Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

October 14th, 2016

Yes we will use the model to track. Really question was about doc that states changes will be made according to the model as actual contributions are made.

Found a Founder Accord template that addresses pre-revenue in clear, concise format that allows for this to be spelled out..

Thanks for the responses!

Chris

Shivi Aggarwal

October 15th, 2016

Hey Chris! Good that you found a template to use. Can you please share the same with the community? I'm too using SlicingPie model and would find it useful too. TIA

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

October 16th, 2016

I don't see a way to post a file..but this is the link to the law firm site and the Founder's Accord they use:

http://www.mcoblaw.com/Forum.aspx

Chris

Adam Pressman

October 14th, 2016

If I understand, Chris, what you mean by "true up" you're looking for a reconciliation of the equity, a fixed percentage perhaps, and that's missing the point of Slicing Pie.  The nature of a dynamic equity allocation is that, as you put it, life happens and it impacts the business' value and that should always be reflected in the results of Slicing Pie if you keep using it.  Even if someone wants to establish a specific valuation of your venture, say, pre-money before they'd buy in,  we would use Slicing Pie to establish the share of the pie and let that participant establish the value of the total pie.  With his contribution he just becomes another "grunt" to use the parlance and his cash contribution has a row in the worksheet to begin his dynamic equity share as well.  There's no reason to stop using Slicing Pie in my view.   Hope that helps. 

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

October 14th, 2016

If you are looking for an agreement between the partners that says 1) this is what has occurred to date and this is how we value our respective contributions and 2) this is how we will value contributions in the future assuming that those contributions occur, (and accounting for adjustments) it is pretty simple document.  Understand that a MOU is usually a lot weaker than a formal agreement that culminates in the issuance of the shares, a lot easier to break and a lot easier to litigate about.

Scott McGregor Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

October 15th, 2016

I don’t recall any specific MOUs to this effect in the companies I have been associated with, but I have been at multiple companies that had a regular process of using part of the quarterly board meetings to identify such issues, and to issue additional options as appropriate for contributions, achievements or milestone recognition. Generally vesting is used to claw back shares from people who have left the company, etc.