Slicing Pie: A Guide to Dividing Up Early-Stage Startup Equity

1 point

14 years ago

Not long ago, I was approached by one of my students at Northwestern, who was distraught over a situation in a fledging company that she had started in my entrepreneurship class. Her group had decided to split the equity in her company equally – 25 percent each. Now that the class was over, the other three partners weren’t pulling their weight. Two of them were pretty much out of the picture, and the third was only doing a little. However, all of them wanted to keep their share of the equity or sell it at an unreasonable price. The student was on the edge of tears. She didn’t know what to do. She found herself a minority shareholder in a company that she had dreamed about starting for several years. Now it seemed that the idea was going to die on the vine.

I wish this was the only time I’d heard this story, but it’s not. It happens all the time.

In spite of an overwhelming number of books offering advice to entrepreneurs, there are surprisingly few about how to properly divide up the startup equity pie to avoid situations like my students’. The last time I counted, the number was zero. So I wrote one, called Slicing Pie, which as far as I know is the only book on the subject that exists.

Because there have been no good resources, many entrepreneurs make the mistake of calling a lawyer or an accountant to help them solve the problem. These people aren’t free, and the money spent is money that could have otherwise been used for marketing, product development, or anything else that helps a company grow. Lawyers and accountants (as much as I love them) don’t really help young companies grow.

No comments

No comments