I’m working on my fourth startup. Each company has had multiple founders with different skills, experience, and connections that they’ve brought to the original team – which makes it hard to decide on equity splits. Add funding to the equation and it only gets more complicated.
If you’ve founded a startup, you’ve probably encountered one of the following challenges:
The Disappearing Cheerleader
Initially excited and enthusiastic about how your solution will change the world, they start missing meetings, not following up on things they said they’d do, are slower responding to emails. They’re on the to the next shiny object, and things get awkward.
The “All In If It Works Out”
Cautious from the beginning, you get the impression that this character is hedging her bets… Putting in enough time to be part of the team if it takes off, but keeping that day job, not changing their Linkedin Profile, or forgetting to mention your new super-awesome project at the latest meetup.
The Big Talker
This is the uber-connected person who can open any door with their massive contact list. But once you need their help, the contacts aren’t so quick to help, or aren’t as strong as you were led to believe. Or, worse, excuses are made why you’re not really “ready” for intros yet – and you get the feeling you’ll never be “ready” enough.
Allergic to Work
Despite an epic startup weekend, life gets in the way of getting stuff done.
It happens. And if you’ve ever started a company, it’s probably happened to you. Next is the awkward conversation “that-should-have-happened-a-long-time-ago” and ensuing equity renegotiation that at worst can kill your startup – and at best dilute your company unnecessarily.
Which is why I love Mike Moyer’s concept of splitting startup equity based on a “grunt fund” and distributing equity on a rolling basis based on contribution. Although it can be difficult to assess relative value to time, money, deals, overhead, it allows a new team to compensate early impact by attributing more equity. It’s what Mike calls “Slicing the Pie”.
The concept is simple – the more you “invest” in the company, the more pie you get. The equity distribution shifts over time, so if you have someone who works hard at the beginning (earning 20% equity for example) but disappears, their shares get diluted as other members of the team continue to drive the business forward. It’s fair to both parties. It can help you avoid the awkward conversations and place value squarely on actual contribution.
Check out Mike’s guide on how to implement a “grunt fund” in your startup.