The Slicing Pie model will allow you to get exactly the equity you deserve. It’s the best way to do this because any other approach means you have to guess the right split. Slicing Pie is a formula that is exact. You can learn all about it a www.slicingpie.com

Equity = Risk

If you’re assuming all the risk, then you don’t have to share equity. Simple as that. Pay everyone a fair market salary, maybe put a bonus program in place, etc.

If you want to share the risk by not paying full fair market compensation you will have to share the equity too. It would not be fair to ask someone to share the risk but limit their rewards. Even if you could get them to agree to some kind of non-equity option it wouldn’t be fair. Agreeing to something doesn’t mean it’s fair.

Check out the Slicing Pie equity model at www.slicingpie.com. It will set you free!

Make sure you hire a lawyer who understands the Slicing Pie model for fair equity splits. Stripe and Clerky don’t use Slicing Pie and without it your equity split won’t be fair. There is a list of lawyers on the slicingpie.com site: https://slicingpie.com/slicing-pie-contracts-and-lawyers/

Whenever equity is expressed as a percentage you have a “fixed” or “static” equity split and sooner or later someone is going to get screwed. If you’re not the person getting screwed then you are the person doing the screwing. It’s unavoidable. This is because the percentage you recieve is based on the assumption that you are going to provide exactly 23% of the inputs necessary to reach breakeven or series A investment. It’s impossible to predict future events and, therefore, impossible to predict equity.

Instead, think of it this way:

Let’s say that you are responsible for building and designing the entire web app, coding the Frontend, backend, and digitizing all requirements for our proof of concept. But, you are going to get paid cash, instead of equity. You are simple being hired as an employee. What would you get paid? Would you get paid by the project? An hourly rate? An ongoing salary?

Whatever you negoitiate as cash payment is your fair market rate. If you get paid your fair market rate you don’t deserve any equity because you aren’t putting anything at risk. If, however, you aren’t paid your fair market salary the unpaid amount is, in effect, at risk.

Your share of the equity should be based on what you put at risk relative to what others put at risk.

For example. If you are worth $100,000 a year and you work a year without pay you are putting $100,000 in unpaid salary at risk. If your partner puts $200,000 at risk he deserves 66.66% and you deserve 33.34% This is a logical, obvious, unambigious conculsion that is perfectly fair. There’s not guessing or predicting. Your at-risk amounts can easily be calculated.

Any other approach is going to be unfair.

This approach, known as The Slicing Pie model, is used by thousands of startups all over the world and it never fails. You can learn all about it at www.slicingpie.com

What you are referring to is good management practices, not necessarily an equity allocation model. People often shy away from “managing” employees, cofounders, advisors, etc. because they are working “for free”. But, nobody wants to work for free.

If you were paying people out of your pocket you would be much more likely to monitor their work and you’d be constantly assessing its value. The same should hold true when using equity.

u/submittomemeow2 asks about the value of the feeling you get when someone has your back. That feeling can be really important. And, in his comment he quantified the fair market value of the advice provided at $4,800. In other words the tangible and intangible benefits can be purchased for a known value. This is true for litterally every input a business can consume. Everything…I mean everything…has a knowable fair market value.

If your company is bootstrapped it means that it cannot pay for contributions from people because it does not have enough cash. So, the unpaid amounts are essentially bets on the future success of the company. An advisor who would otherwise charge $4,800 for her advice and agrees not to accept cash payment is betting exactly $4,800 in unpaid compensation.

Everyone’s unpaid compensation and unreimbursed expenses should be treated the same way. The unpaid portion of the fair market value represents what each person bets on the future outcome of the company.

A person’s share of the equity, therefore, should be based on that person’s share of the bets.

This equity allocation model is known as Slicing Pie and it’s used by startups all over the world. It is the only way to calculate exactly what each person deserves in a company.

Knowing that not getting paid isn’t the same as working for free should cast the participation of any one person in a new light. Specifically, that person should be managed as if he or she is getting paid.

Good management means setting a clear vision and clear goals and clear milestones and then holding people accountable. In the case of the advisor, if the $100 phone calls stop being productive the manager can then take steps to separate from the individual and limiting future bets which would count towards equity. (https://slicingpie.com/the-good-way-to-say-good-bye/)

Contrast this with a fixed or static percentage of the company. Say, 1% for the advisor. This means the advisor gets the same amount whether they do one phone call or 48 calls and whether the time is productive or not. This is what it means to “blindy” give away equity.

The Slicing Pie model is the opposite of blind because it realies on easily observable fair market values.

No equity model will replace good management practices.