Title: Slicing Pie: Funding Your Company Without Funds
Author: Mike Moyer
Year: 2012
Category: Scaling Up

Introduction:

“Slicing Pie: Funding Your Company Without Funds” by Mike Moyer is a practical guide designed for entrepreneurs looking to start or grow a business without upfront funding. The book introduces a dynamic equity split model that fairly allocates company ownership based on each participant’s contributions. The core premise is built around a concept called the “Grunt Fund,” ensuring that all contributions—time, money, ideas, and more—are recognized and rewarded equitably.

1. The Inevitability of Unfair Splits:

Major Point:
Traditional equity splits often lead to conflict and dissatisfaction as they are typically decided upfront when the future contributions and roles are uncertain. Over time, this can result in feelings of resentment when team members realize an inequitable distribution of ownership.

Action:
Adopt a dynamic equity split model rather than a fixed one. Before any work begins, agree with your team that equity will be distributed based on actual contributions rather than future guesses.

Example:
Mike shares a story about two friends who start a company and agree on a 50/50 split. Initially, both contribute equally, but soon one founder puts in significantly more time and resources than the other. Resentment builds when the company takes off, and the unfair split threatens their friendship and the business’s stability.

2. The Grunt Fund:

Major Point:
The Grunt Fund is the heart of the Slicing Pie model. It is a system for calculating the fair market value of contributions each person makes, including time, money, resources, relationships, and risk.

Action:
Establish a Grunt Fund for your startup. Regularly update each team member’s contributions and calculate equity shares based on these inputs.

Example:
A programmer invests 200 hours into developing a prototype. Instead of a fixed equity percentage, their contribution is evaluated using their equivalent market salary. If their market rate is $50/hour, their slice pie is worth $10,000 of market value steps, which is then translated into equity.

3. Types of Input:

Major Point:
Contributions to a startup fall into several categories: time, cash, IP, supplies, equipment, relationships, and more. Each type of input should be assigned a fair market value to accurately allocate equity.

Action:
Keep a detailed log of every type of contribution from each team member, assigning real market values to each type.

Example:
A designer donates her laptop to the company, valued at $1,500. Instead of ignoring this, the Grunt Fund accounts for it, and her equity is adjusted accordingly.

4. The Slice Calculation:

Major Point:
Slices are the units of value that convert contributions into equity. Each contribution, once quantified, is translated into slices that accumulate to form a person’s share of the company.

Action:
Implement a slice calculation system where each participant’s contributions are turned into slices based on a consistent and agreed-upon formula.

Example:
An advisor provides consulting worth $5,000. Using the Slicing Pie model, these $5,000 are converted into slices. If the agreed factor is 2x for non-cash contributions, the advisor earns 10,000 slices.

5. The Allocation Formula:

Major Point:
The allocation formula ensures that if the company’s value changes due to new investments or milestones, everyone’s shares adjust proportionally.

Action:
Define your allocation formula clearly and apply it consistently whenever new contributions are added or the company’s value changes.

Example:
When the company receives a new cash investment, the allocation formula recalculates everyone’s shares to reflect the new influx considering all previous non-cash contributions.

6. Managing Departures:

Major Point:
The dynamic nature of Slicing Pie ensures fair treatment of members who leave the company. Founders who depart must return their unvested shares, ensuring the remaining team’s equity is still fair.

Action:
Create a written policy based on the Grunt Fund’s principles to handle voluntary and involuntary departures, clearly defining vested and unvested shares.

Example:
A co-founder leaves the company after contributing $20,000 worth of effort, but with shares unvested. Based on agreed terms, they forfeit these shares, which can then be redistributed among remaining members or new entrants.

7. The Value of Time:

Major Point:
Time is often the most significant contribution in early-stage startups. Accurately valuing time through a consistent methodology ensures fairness and transparency.

Action:
Determine a fair market rate for everyone’s time and consistently log the hours worked by each member.

Example:
An engineer works 400 hours at an equivalent market rate of $75/hour. These contributions are logged as $30,000 market value slices, which then adjust their equity share accordingly.

8. Dealing with Investors:

Major Point:
Investors can sometimes disrupt the equity balance. The Grunt Fund provides a structured approach that integrates investments fairly.

Action:
When receiving investments, use the Slicing Pie model to ensure that the new capital translates into slices that re-balance the equity without reducing the value of prior contributions unfairly.

Example:
When a $500,000 investment is made, these funds are translated into slices using the same valuation multipliers as other non-cash contributions, resulting in a proportional adjustment of equity for all founders and contributors.

9. Legal Considerations:

Major Point:
Although the Slicing Pie model is a fair system, it needs to be legally binding to protect all parties involved.

Action:
Work with a legal expert familiar with dynamic equity models to draft agreements that incorporate Slicing Pie principles into your company’s bylaws.

Example:
Mike highlights that written agreements outlining how equity will be allocated, transferred, and vested through the Slicing Pie model can prevent potential legal disputes.

10. Case Studies and Real-World Applications:

Major Point:
The book presents numerous case studies showing how different startups utilized the Slicing Pie model successfully.

Action:
Study real-world examples and case studies of Slicing Pie applications. Tailor insights and strategies to fit the unique context of your startup.

Example:
A software startup used Slicing Pie to manage contributions from a diverse team of remote workers. They assigned market rates to each member’s time, resource, and intellectual contributions, ensuring everyone felt fairly recognized and rewarded.

Conclusion:

Mike Moyer’s “Slicing Pie: Funding Your Company Without Funds” provides a structured, flexible, and fair approach to equity distribution in startups. By valuing all types of contributions and dynamically adjusting shares, it aims to mitigate many conflicts inherent in traditional equity splits. The concepts are grounded in real-world applications, making it a valuable resource for any entrepreneur aiming to build a sustainably fair and motivated team.

By adopting the principles and actions outlined in this summary, entrepreneurs can build harmonious and resilient teams, drive sustained growth, and ensure equity is distributed transparently and fairly. Slicing Pie equips startups with the necessary framework to innovate and scale without the initial burden of financial resources.