This is a very sensitive topic. It’s like planning your divorce while you’re on your honeymoon. It also points out the actual, real life level of skin in the game as well as quantity of energy spent and sweat equity…sweated(?) so far by each member. No more time for promises or talk. Time to put up or shut-up. And to make it more complicated…you’ve got to also calculate the estimated future contributions of each member, not just what has been done in the past).
Previously I’ve been playing around with this model, but now I’ve found a better looking one.
Xingergy is at this honeymoon/divorce stage right now. I want to get it done, but my two partners don’t seem to be too interested in discussing this. For the past week I’ve been been prompting them (not to mention the past several months), but no response on this. Hopefully other startups can at least get the team to the table. Once you do, I suggest using this awesome model, taken from the “why the hell didn’t I think of that” department:
This method allows the team to assign values to each component of the startup. In the example the link uses the components are: idea, business plan, domain expertise, commitment and risk, and responsibilities. But a startup team could use any number of examples, whatever pieces makes up your startup. Next, you assign a value to each component between 1 and 10. Was the idea so awesome (like a new technology to instantly dry a women’s hair and apply her makeup) that the inventor just needs a team of engineers to produce it? Then “idea” is worth a lot of points, maybe 7 or 8. Or was the idea “an Italian restaurant where that Apple Bee’s was? Idea is worth 2 points, maybe. And so on, until each component of your startup is valuated. This is a good method as you can compare the relative valuations of each component to one another and check for inconsistencies (thank God for spell-check) between components.
If only such a team could be created. Research says one woman and two men make the best teams
After the “value” of the startup is determined, by itemizing each component of the startup, you determine each entrepreneur’s contribution level to each component, again on a 1 to 10 scale. This should be pretty easy *IF* you have clearly itemized and quantified each component beforehand. If one person wrote the business plan (9 points) with some input from another (3 points), while the other guy was at work (0 points), then it should be pretty clear and straightforward. Maybe not easy for the guy that didn’t do much work and thought he would skate by, but still straightforward.
If anyone in your team knows how to add numbers together and operate Excel, they should create a spreadsheet that automatically adjusts these numbers and produces the resulting equity in all its exposed, bare glory. Bring band-aids for hurt feelings.
An Excel file of my version of the Founder’s Pie
calculator, download for your enjoyment :
Equity Pie Calculator