I founded a company with my business partner around a product that I invented. I came up with the idea, designed the product, did the patent search and wrote the non-provisional patent application. I also wrote a business plan. I had some help building the prototype from a machinist, an industrial designer will help with the product development, and a patent lawyer edited and modified my provisional patent application and he will help write the non-provisional patent application. My business partner has paid and will pay for all of these things. I have done most to all of the work and coordinating that has propelled us forward thus far. I've made most of the connections (except for a couple) that have allowed us to propel forward. However, he is financing everything. He is expected to spend almost $100K on this business which will carry us through the first production run. He will also be responsible for building our company website. We both plan to stay with the company for the long term - provided the product is successful. Should we divide the equity equally between us? Is that the best way to go?
The best way to go--by far-- is to use a Grunt Fund. A Grunt Fund is a dynamic equity split model designed to provide a perfectly fair equity split for founders of bootstrapped companies. It will tell you exactly how much you and your partner and later partners and employees deserve. It's based on the relative contributions you have each made and changes over time as new contributions are made to make sure that at any given time you and your partners always have what they deserve to have- no more and no less.
The basic model is this: All contributions of time, money, ideas, relationships, supplies, equipment or anything else, can be converted into a fictional unit I call "slices". A slice is calculated based on the fair market value of the contribution and a risk multiplier.
To determine shares you simply apply this calculation:
Individual share = individual slices ÷ total slices
There is also a recovery framework that outlines what happens to shares when someone leaves the company.
I call this a "Fair & Square" split. Fair, in that it always tells you exactly the right split. And, square, because it accounts for all contributions.
I wrote a book on this model that provides detailed implementation instructions. There is also an online calculator tool on my web site. If you contact me through SlicingPie.com, I'll send you a copy of the book!
You're going to love it.
Answered 9 years ago
Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.
Already a member? Sign in