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Has anyone used the "Slicing Pie" method of managing equity allocations through a "grunt fund"?

One of my advisors recommended the book "Slicing Pie" to me. I started to read it, and couldn't put it down. The simplicity and fairness struck a cord.

The basic idea is that you don't formally divide up the company until you have a real financing event, like when the first outside/professional money comes in. Instead you pre-agree to keep track of the contributions of the team (time, money, pre-existing IP, etc.), creating a "grunt fund" that has no value but that will serve as the basis for dividing up equity when external financing or some other event sets a valuation. His argument makes sense to me - the equity has no value until it is priced, and figuring out fair allocations based on future contributions is impossible (vesting only helps a little with that), so any attempts to sort it out fairly and manage incentives are very likely to fail.

But that is all in theory. Has anyone done this?

13 Replies

David Bergman
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David Bergman Entrepreneur
CTO, Co-Founder of Stackray, Inc.
I have applied this scheme twice, but in both cases with "co-founders" I know *extremely* well. I am afraid that there might not be consensus on the relative value of different inputs/deliverables once money is smelled. I am also curious as to why the relative importance/value of the various "currencies" involved would change upon a financial event?

But, yes, for situations where one knows the others VERY well, yep.
Erik Larson
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Erik Larson Entrepreneur
CEO at Cloverpop
Thanks David. So I take it that things worked out for you?

WRT your question, it's not that the financial event changes the value of the "currencies"...it's just the moment when you actually allocate ownership and set up a 'proper' stock or stock option program, since then at least you have some basis for the value of the equity.

In terms of valuing inputs fairly, the idea is that since everyone agrees and sees what everyone contributed and what they got for it, you reduce the risk of unfair feelings and distractions when the smell of money wafts in. That level of up-front transparency seems to demand a lot of trust all by itself.
David Bergman
0
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David Bergman Entrepreneur
CTO, Co-Founder of Stackray, Inc.
It has worked out very well, even without an a priori currency exchange rate.

What I would do when applying the Slicing Pie method would be to establish a currency exchange up front, however silly that might sound, such as "one day of sweat for person X = 1 star", "one day of sweat for person Y = 2 stars", "attendance to investor meeting = 1 star", "a bundle of 20 pages of business documents = 3 stars"... One can then make it game-like to distance oneself from it, till that financial (or otherwise tangible business) event.
Richard Rosen
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Richard Rosen Entrepreneur
Founder of FastCall --​> #1 Phone Sales Productivity app in the Salesforce AppExchange
I used a basic version of this. Totally agree. Why bother until it matters?
Felipe Lara
1
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Felipe Lara Entrepreneur
Concept Designer | Creative Director | I help entrepreneurs and developers build better games
I am using it and it has worked great so far, but my team is mostly people with whom I worked for many years before, so we all trust each other. In cases like this, I think the method is great. It takes a big weight off our backs for its transparency and fairness, and lets us focus in developing a product instead of wasting time thinking who is going to get what, why, etc.
Sri Ram K Vemulpali
0
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Sri Ram K Vemulpali Entrepreneur
Member of Technical Staff at Riverbed Technology
Hi Erik, Please find the attachment. In the slides you will find "Weighted-Average ownership framework", which will give idea on how to divide the pie with fairness. If you have any questions you can ask me. Also, follow rest of the ideas, which will give fair understanding. All the best. Regards, Sri.
Joseph Hsieh
1
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Joseph Hsieh Entrepreneur • Advisor
Growth Marketing & User Acquisition Specialist
One instance that is similar is done by Philip Rosedale (founder of Second Life) who implemented a peer-bsaed "stock option" process. It was documented int his WSJ article:

Joseph Hsieh
http://twitter.com/webjoe
Monica Borrell
0
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Monica Borrell Entrepreneur
CEO and Founder at Cardsmith
I just read the book Slicing Pie and wanted to ask the same question, but will comment here rather than starting a new thread. I am working with a team of 3 - one who I've known a very ong time and trust very much. Another guy has just joined as a technical co-founder and my intuition says he is very trust worthy and like minded.

After reading the book, I'm inclined to give slicing pie a try. I'm curious if anyone has further thoughts on the potential unintended consequences to watch out for.

I realize the bookkeeping of time and money is a bit of a burden, but it seems a small price to pay for transparency, fairness and the discipline required to make sure all time and money drives value for the business (or theoretical value at least).

Eric, have you implemented this since your original question back in April?
Sati Hillyer
1
0
Sati Hillyer Entrepreneur • Advisor
Looking to Hire a Ruby Engineer to join OneMob - 2015 Gartner Cool Vendor for CRM Sales
I'm starting to try out slicing pie too, do you use this for advisors too? I'm not finished, but it seems to give active advisors quite more than the typical .5-2% range I normally read about. Is that fair?

Here's the team breakdown:
Right now I have me (full-time founder), 1 part-time founder, 1 full-time engineer and 1 active part-time advisor. Part time is less than 5 hours a week. I've given everyone the same market salary / GHRR to keep things simple and level the playing field.

Thoughts?
Mike Moyer
7
0
Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
Hi! I'm the author of Slicing Pie and I can't believe I didn't notice this question until now! The Grunt Fund is the most fair way to divide equity for bootstrapped companies. It works, I promise. If you use the model as described everybody will get exactly what they deserve. No more and no less.

Dynamic equity programs are infinitely better than fixed splits. Until now, they haven't been widely used because they haven't been widely understood. Slicing Pie is the first practical guide for implementing a dynamic split.

With regard to implementation, I've sold thousands of copies of the book in the last year and I've been doing a lot of speaking event as far away as Bogota, Colombia. The method has been adopted worldwide and I get emails from readers every day. I've posted a short list of companies who are using a Grunt Fund on my site:http://www.slicingpie.com/grunt-fund-directory/

Also, Clint Costa is a Chicago-based attorney who has helped at least 60-70 companies implement the program in the past year. He offers a Grunt Fund agreement template to help get people started:http://www.slicingpie.com/clint-costa/

You are always welcome to send me questions to [removed to protect privacy] or chat with me on my site www.SlicingPie.com

If, after I die, I'm known as the guy who helped startups implement dynamic equity splits, I'll consider it a life well lived!

Thanks for asking about Slicing Pie!


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