Slicing Pie refers to a dynamic and flexible equity allocation system that is commonly used in startups or early-stage companies. The concept was developed by Mike Moyer, an entrepreneur and author.
In a traditional equity allocation system, founders and stakeholders negotiate and agree upon equity distributions based on initial contributions or projected future contributions. However, the Slicing Pie model acknowledges that it is difficult to accurately forecast the relative value of each participant's contributions over time, and that circumstances may change.
Instead of pre-determining fixed equity shares, Slicing Pie suggests that equity should be allocated in proportion to the fair market value of each participant's contributions. This means that the equity percentages can vary over time, based on the value each individual brings to the venture. Contributions can include time, money, expertise, resources, or any other valuable contribution made towards the venture.
The Slicing Pie model also factors in the notion of "pie shrinkage," which represents risks and sacrifices made by founders or stakeholders, such as working without pay or investing personal assets. These factors are considered when allocating equity, ensuring a fair distribution that reflects the true value and effort of each participant.
Slicing Pie is a dynamic and flexible approach that aims to prevent disputes or inequities when allocating equity. It provides a transparent and fair framework for equity distribution, allowing for adjustments as the venture progresses and minimizing the need for negotiations or legal battles.
