Initially developed for bootstrapped startups in the early stage, slicing pie is a dynamic equity split method enabling founders to split the company equity based on the cofounders’ contributions to the company. 

I found in my work with by now 500+ cofounding teams that the benefits of slicing pie extend far beyond the initial use case. One of the interesting use cases that I frequently recommend is using the framework as a starting point for new cofounding teams for their equity split conversation. 

Suppose you have a team together and it is more or less clear who is bringing what on the table (and when it is not clear please make sure it is clear BEFORE you get into the complexity of equity split conversations). At least a rough outline of the future cofounders commitment, contributions and roles is actually required if you want your equity split to be based on some substance rather than on who is a better negotiator in the team. 

What are the secret powers and benefits to use the slicing pie forecast for your starting equity conversation? 

#1 Clarifies assumptions: I would put my bets on that many more cofounder breakups happen because of different and unclarified assumptions than bad intentions. To use the forecast tool, you need to discuss with your team:

a. what is the future planned commitment of each cofounder

b. what are the fair market salaries of the founders - verifying whether the team is aligned on the value of the contributions the founders are bringing; and 

c. last but not least - who will actually contribute what, in order to decide what is the appropriate contribution measure for the respective founders - is it time spent? commission on sales? an investor finder fee? Royalties for pre-existing IP? You can customise it to what fits your team. 

#2 It helps to prevent the past bias: It is a basic characteristic of our human nature that things that have happened are more concrete and tangible than the things we expect to happen. Hence founders tend to have a past bias when allocating equity. Typically you need to allocate the equity stake fairly early in the journey. Sometime hopefully after customer validation, but typically (for most of the businesses) well before profitability. The underlying premise of slicing pie is that founders get rewarded proportionately for what they put at risk - their contribution.  It is very common that the contributions at the beginning are disproportionately overvalued in equity splits compared to the required future ones! For example - more than half of the first timer cofounding teams I have worked with would confide in me that they think they overvalued the initial idea. Now if the overvalue is not too big, the team can survive. If it is too big - and is not adjusted for - the team will very likely fail. 

#3 scenarios / sensitivity analysis: More likely than not you WILL experience at least one of these factors:

• Your business model changes

• Your product / service changes

• Your cofounding team changes 

The forecast tool enables you to get a good feeling what the impact of these changes could be. For example, what if one of your cofounders will unexpectedly only be able to work part time? What if you find the key investor? What if the sales grow slower than expected? … etc. 

Optional AND desirable: #4. Future proofing governance

The most frequent reason why equity splits are wrong is because they end up not being fair. And when that happens, you either lose cofounders or (probably worse) they will stay and not pull their weight. Either way, in the end with unfair equity splits everyone loses. So having a fixed equity split without any future proofing adjustment clause is simply a bad idea. 

Typical future proofing for fixed equity splits consist only of vesting schedules. An interesting alternative is to use the slicing pie as an adjustment clause. How? You simply have an initial fixed split and you agree with the team to keep the contributions records until… ideally until you can pay founders their fair market salary so their risk at stake goes lower. So you keep the records, and at that moment you check your expectations (when you initially allocated the equity) with the reality (what actually happened). If the difference is bigger than X (set your own sensitivity threshold), you have the cofounders commitment to reallocate the equity stakes to reflect it. For implementation, please be careful of the potential tax consequences, depending on your jurisdiction and type of company!

Curious? Try it!