One of the first and most important questions a new startup, business or company should have is how to divide the stock amongst its co-founders or stockholders.
Purpose of the Co-Founders Pie
The Co-Founder’s Pie can be used in two different ways:
A) Work and responsibility distributor
We always use the Co-Founder’s Pie to calculate how to distribute work and responsibilities between the co-founders. First we write in everything as it is and then tweak it to make it as balanced as possible so we keep the same equity for all the co-founders. That’s the best approach, if all the co-founders can have the same equity everything would be much better and simpler. If we end up with a 33% 32% 34% then we will agree and share them at 33% each. But if the distribution is quite unbalanced, something like 40% 35% 25% and we can’t tweak the spreadsheet further to balance work/responsibilities then we will go with that equity.
B) Calculate co-founder share equity
If you already have all the areas assigned then you can calculate the equity division with the spreadsheet and see exactly how much should every co-founder own.
It is recommended to fill in the spreadsheet in a meeting, when all co-founders are present and do it all together, agreeing on each step. Also, please read this article (5 minute read) from Frank Demmler to learn the origins and reasoning of the Co-Founder’s Pie and the actual purpose of all this.
1. Login to Google, follow the link above and click ‘Use this template’
A new copy of the Co-Founders Pie Spreadsheet will be created in your Google Docs. No one has access to it now, not even me. To allow people to collaborate click the Share button (top right corner).
2. Fill in the co-founder names at the top
You can write from 2 to 5 different co-founders.
3. Allocate the different items, tasks, areas in Column A
Examples are in there for demonstration purposes, create your own elements from scratch.
4. Fill in the Weight of each row
This is the most important step of all. Decide a relative importance for each element.
The minimum value is 1, higher is more important. Example: Finance=1 and Design=2 means Design has twice the amount of work or responsibility than Finance.
5. Fill in the amount of work/responsibility of each co-founder
Add a number from 0 to 10 for each player’s participation in each element. It should add up to 10, no more, no less. Use round values like: 3-7 or 1-5-4. If everyone has the same amount leave it blank.
6. Results in Row 2
Row 2 show how much each co-founder owns of the company. You can change all the numbers in the spreadsheet and it will automatically update.
Good to know
Please read this question (spanish translation) if you are unfamiliar with equity division, it is a completely different approach but a must-read which should be considered whenever work and responsibilities among co-founders is quite similar. Also, have a look at OnStartups Q&A site for many interesting information.