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\begin{document}

\title{Slicing Pie : A Summary}



\author[1]{chatrapathi.akula}%
\affil[1]{Affiliation not available}%


\vspace{-1em}



  
  \date{May 07, 2024}


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\sloppy


\section*{Some Basics}

{\label{542518}}

\begin{itemize}
\tightlist
\item
  \textbf{Cash contribution} is more-at-risk than time or other non-cash
  contribution.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(Your\ Share\ \left(\%\right)=\frac{Adjusted\ FMV\ of\ your\ Contribution}{Total\ Adjusted\ FMV}\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{itemize}
\tightlist
\item
  A~\textbf{Slice} is a fictional unit used to represent the adjusted
  fair market value (FMV) of an at-risk contribution.
\item
  Measuring risk in a startup is as impossible as measuring future
  value.
\item
  A \textbf{reward} is financial in the form of profits/dividends or
  proceeds of a sale.
\item
  A contribution is considered~\textbf{at-risk}~when participants
  invest, in a startup, contributions such as time, money, ideas,
  relationships or anything else and don't get paid.
\item
  Slicing Pie is used before~\textbf{breakeven} and equity is based on
  what people put at-risk.
\item
  After~\textbf{breakeven} everyone is getting paid, so equity is no
  longer about what is at-risk, but, often, part of a bonus or retention
  strategy.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(Your\ Share\ \left(\%\right)\ =\ \frac{What\ you\ put\ at\ risk}{Everything\ that's\ at\ risk}\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{itemize}
\tightlist
\item
  What is \emph{\textbf{at-risk is a function of the fair market value
  of a contribution and a risk multiplier}} that normalizes cash and
  non-cash contributions and imposes consequences on the at-fault party
  in the event of a person's separation from the company.
\item
  To apply the model, you will have to keep track of what each person
  puts at risk.
\item
  Use the model until sufficient cash is available to pay participants
  for their contributions.
\item
  When everybody is getting paid for their contributions (after
  breakeven), they will no longer be putting their contributions at
  risk. At this point, the model will~\textbf{freeze} and subsequently,
  will tell managers how to divide up the proceeds of a sale.
\end{itemize}

\begin{quote}
The basis for fixed split allocations are industry trends, guesses about
future value, advice from well-meaning advisors or negotiation skills.

The hard part about fixed splits is unwinding them when you realize
you've made a mistake.
\end{quote}

\begin{itemize}
\tightlist
\item
  The~\textbf{allocation framework} tells you how to give slices to
  individuals as they make contributions to the company.
\item
  The~\textbf{recovery framework} tells you what to do when someone
  leaves the company, ensuring that each participant understands the
  consequences of their decisions as they relate to ongoing
  participation in the firm. It also provides a means for buying out
  ex-employees if and when appropriate.
\item
  When a person contributes to a startup they are betting the~FMV of
  that contribution on the future outcome of the startup.
\end{itemize}

\begin{quote}
\begin{itemize}
\tightlist
\item
  FMV of a year of a person's time is their salary. If they forego that
  salary to work for a startup to do similar work, they're betting that
  amount of money.
\item
  The opportunity cost of working for a startup is the amount of money
  you would've earned elsewhere doing a similar job.
\end{itemize}
\end{quote}

\begin{itemize}
\tightlist
\item
  The way an individual reaps the benefits of a company's financial
  return is through their individual entitlement to a slice of the pie.
\end{itemize}

\section*{Allocation Framework}

{\label{654142}}

\begin{itemize}
\tightlist
\item
  Applies the Slicing Pie formula to determine a person's share of the
  at-risk contributions.
\item
  The following contributions are recognized in the Slicing Pie
  framework -
\end{itemize}

\begin{quote}
\begin{itemize}
\tightlist
\item
  \textbf{Cash Contributions} - Unreimbursed Expenses and Cash
\item
  \textbf{Non-Cash Contributions} - Time, Ideas, Relationships,
  Equipment and Resources such as Office Space
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\(Individual's\ Share\ \left(\%\right)\ =\ \frac{Individual's\ Slices}{Total\ Slices\ of\ all\ Participants}\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\subsection*{Calculations}

{\label{186428}}

\begin{itemize}
\tightlist
\item
  To convert an individual's contribution into slices, multiply the FMV
  of the contribution (less cash payments) by the cash or non-cash
  multiplier.
\item
  Multipliers act as a built-in retention tool for companies and a
  severance program for employees.
\end{itemize}

\begin{quote}
\begin{itemize}
\tightlist
\item
  \textbf{Non-cash Multiplier} = 2
\item
  \textbf{Cash Multiplier} = 4
\end{itemize}
\end{quote}

\subsubsection*{Cash Contributions}

{\label{900423}}

\begin{itemize}
\tightlist
\item
  Cash contribution consumers an individual's actual cash, usually as
  unreimbursed expense or cash expenditure from the company account. It
  can also be tangible property with cash value like equipment or
  supplies.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(Slices\ =\ FMV\cdot Cash\ Multiplier\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{quote}
The FMV of cash is the amount of cash spent. If the cash isn't spent,
it's not at risk and just sitting in a bank. Slices get allocated when
the cash gets spent.
\end{quote}

\subsubsection*{The Well}

{\label{582129}}

\begin{itemize}
\tightlist
\item
  A pool of funds from which managers can make payments.
\item
  They can use the money for whatever they need to, subject to
  restriction of the investor, if any.
\item
  Money in the Well doesn't convert into slices at the time of deposit.
  Instead, slices are created when the company spends the money.
\item
  When the money is drawn from the Well and put into a company account
  to pay bills, it converts to slices for each Well participant in
  proportion to their current ownership of the Well money.
\item
  Best suited for active participants in the company.
\end{itemize}

\subsubsection*{Unreimbursed Expenses}

{\label{325963}}

\begin{itemize}
\tightlist
\item
  Most common cash contribution from employees.
\item
  This is money spent on anything for the firm that doesn't get
  reimbursed from the company account (Well).
\end{itemize}

\begin{quote}
\begin{itemize}
\tightlist
\item
  Anson pays \selectlanguage{ngerman}£250 for a train ticket to take a company trip to Amsterdam
  and doesn't get reimbursed from the company account. Anson would
  receive 1,000 slices.
\item
  Norvin pays £2500 to hire an attorney to write a customer contract and
  doesn't get reimbursed from the company account. Norvin gets 10,000
  slices.
\item
  Merrily uses her credit card to buy a client a £40 dinner and only
  gets reimbursed from the company account. Merrily gets 120 slices
  {[}£(40-10)*4{]}.
\item
  If it's not customary to cover an expense for employees in your
  country or local market you don't have to provide Pie.
\item
  When employees use their own money to pay for things on behalf of the
  company and do not get paid back, this is an unreimbursed expense.
\item
  Money in the Well could be used to reimburse employees, in which case
  the owners of the Well would receive slices, not the employees.
\item
  Employees and Contractors should keep track of expenses and save
  receipts so they can accurately report their expenses.
\end{itemize}
\end{quote}

\subsubsection*{Loans and Credit Cards}

{\label{316817}}

\begin{itemize}
\tightlist
\item
  Sometimes, an individua uses personal credit to secure a loan on
  behalf of the company or puts expenses on their credit card.
\item
  If the individual is making payments on the loan, the money is treated
  as cash when money is spent.
\item
  If the loan is a lump sum for general purposes, it becomes part of the
  Well and slices are given when the money is drawn out.
\item
  If the loan is used to buy something specific, the money is spent and
  converts immediately to slices.
\item
  If the loan is taken out in the individual's name, but is being paid
  back by the company instead of the individual, the individual doesn't
  receive any slices.
\item
  Loans and credit card expenses are treated as cash (4x) if the
  individual who provided the loan is making the payments. If the
  company's making the payments - with or without additional interest -
  no slices are granted.
\item
  When cash-money is spent on behalf of the company, and the individual
  who provided the cash is not paid back, the FMV of the cash is equal
  to the cash spent.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(FMV\ =\ Amount\ of\ Cash\ Spent\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\subsubsection*{Supplies \& Equipment}

{\label{508180}}

\begin{itemize}
\tightlist
\item
  If purchased for the company and the person who purchased them was not
  reimbursed from the company account, the FMV would be the price they
  paid.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(Slices\ =\ \left(PRICE\ PAID\cdot Cash\ Multiplier\right)\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{itemize}
\tightlist
\item
  Transferring ownership of a pre-owned asset into a company isn't the
  same as spending cash. It's a non-cash contribution. It represents a
  different level of risk and slices are at the non-cash rate.
\item
  If the supplies or equipment are less than 1 year old, then FMV is the
  purchase price and resale price otherwise.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(<1yr\ =Slices\ =\ PRICE\ Paid\cdot NonCash\ Multiplier\)

\(>1yr\ =Slices\ =\ Resale\ PRICE\cdot NonCash\ Multiplier\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{itemize}
\tightlist
\item
  When slices are received, the supplies and equipment become the
  company's property.
\end{itemize}

\begin{quote}
\begin{itemize}
\tightlist
\item
  If the person who contributed the equipment leaves the company, they
  can't take the stuff with them.
\item
  However, as per the recovery framework, they may be entitled to some
  kind of payment.
\item
  In many cases, personal laptops or cellphones used in building the
  company, wouldn't be treated as contributed equipment and people who
  own them wouldn't receive slices. The company, therefore, wouldn't own
  these items and departing employees can take them when they leave.
\end{itemize}
\end{quote}

\subsubsection*{Non-Cash Contributions}

{\label{891718}}

\begin{itemize}
\tightlist
\item
  A non-cash contribution is pretty much anything an individual
  contributes without an outlay of cash.
\item
  Time is an example since there are no direct expenses associated with
  the time spent working on a startup.
\item
  Similarly, there are no direct costs associated with introducing the
  company to q qualified prospect.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(Slices\ =\ FMV\ of\ Contribution\ \cdot2\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\subsubsection*{Time}

{\label{324251}}

\begin{itemize}
\tightlist
\item
  The FMV of their time spent towards work at the startup is the salary
  they would be paid at another company for similar work.
\item
  If £20k of a fair market salary of £50k is paid, the person is risking
  £30k.
\item
  The more cash you pay, the less risk the person takes and the fewer
  slices are allocated for the time she contributes.
\item
  If you pay 100\% of their fair market salary they would contribute
  zero slices.
\item
  Convert the annual salary into an hourly rate,
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(Annual\ Hourly\ Rate\ \left(AHR\right)\ =\ \frac{Annual\ Salary}{2000}\)

the 2000 is assuming a 40hr week across 50 weeks and 2 week vacation.
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{quote}
A~\textbf{Open Vacation Policy} is recommended where people can take as
much time off as they need as long as their work is getting done. This
not only treats people like adults who can manage their own time, but it
also avoids the problem of managing slices for paid time off.
\end{quote}

\subsubsection*{Built-in Incentives}

{\label{150384}}

\begin{itemize}
\tightlist
\item
  Extra work is automatically rewarded when using the hourly rate.
\item
  If someone works 50hrs/wk they will contribute slices for 50hrs/wk
  instead of 40hrs.
\item
  This applies only to the at-risk portion of the salary. The paid
  portion of the salary doesn't reward extra work in the same way. In
  addition, to rewarding extra time, this provides a disincentive to
  take cash from the company, which is what you want if you're trying to
  conserve cash.
\end{itemize}

\subsubsection*{Overtime}

{\label{748081}}

\begin{itemize}
\tightlist
\item
  In most cases, the amount of time people spend on the startup varies
  dramatically. It's for this reason the hourly rate is used.
\item
  Participants simply track the hours they spend working to determine
  the fair market rate of their contribution of time.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(FMV\ of\ Time\ =\ Hrs\cdot Hourly\ Rate\ \left(plus\ Overtime,\ if\ applicable\right)\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{itemize}
\tightlist
\item
  Slices/hr will show you how many slices you contribute with every hour
  you contribute -
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(Slices\ per\ hour\ =Hourly\ Rate\cdot NonCash\ Multiplier\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{itemize}
\tightlist
\item
  An awesome side benefit to tracking time and other contributions is
  that it provides great information for professional investors during
  the due diligence process.
\item
  Time reports will not only tell you what someone is focusing on , but
  how productive they are. If you have a chronic time-waster, you may
  have grounds for termination with cause.
\end{itemize}

\subsubsection*{Value}

{\label{322848}}

\begin{itemize}
\tightlist
\item
  Time spent on a startup doesn't automatically make it more valuable.
\item
  Experienced people usually have a higher hourly rate, which
  encapsulates their skills, education and expertise.
\item
  You pay more for good employees because they can produce more for less
  money.
\item
  You also pay more for good employees because they are supposed to come
  up with more great ideas than other employees.
\end{itemize}

\subsubsection*{Raises and Incentives}

{\label{611691}}

\begin{itemize}
\tightlist
\item
  If you have an employee that has lot's of good ideas, they will be
  more valuable to your company and may deserve raise, just like they
  would if they were working for a company that was paying them a cash
  salary.
\item
  Similarly, it's okay to negotiate a salary bonus if bonuses are
  typical for the type of position you are hiring for.
\end{itemize}

\begin{quote}
A good bonus program should be tied to company performance. A bonus
program may not make sense for a company that isn't making money.
\end{quote}

\subsubsection*{Contractor Time}

{\label{499402}}

\begin{itemize}
\tightlist
\item
  The hourly rate of a contract/freelance employee is likely to be much
  higher than their fair market salary.
\item
  The fair market rate for these people is their hourly rate.
\item
  It's fair to negotiate a buyout for the company so that the managers
  can avoid an absentee owner.
\item
  It is recommended for the payment schedule to increase the buyout
  price to 200\% of the base price.
\item
  If you can pay them, you do pay them else add their slices to the pie.
\item
  You'd maintain the right to buy back slices if you suddenly came into
  money, according to the following schedule -
\end{itemize}

\begin{quote}
\begin{enumerate}
\tightlist
\item
  Month 1 - 100\% Buyout
\item
  Month 2 - 109\% Buyout
\item
  Month 3- 118\% Buyout
\item
  Month 4- 127\% Buyout
\item
  Month 5- 136\% Buyout
\item
  Month 6- 145\% Buyout
\item
  Month 7- 155\% Buyout
\item
  Month 8- 164\% Buyout
\item
  Month 9- 173\% Buyout
\item
  Month 10- 182\% Buyout
\item
  Month 11- 191\% Buyout
\item
  Month 12 - 200\% Buyout
\end{enumerate}
\end{quote}

\begin{itemize}
\tightlist
\item
  At the end of the year, you can buy them out for twice what they
  would've billed a regular client for their work.
\item
  After that, the buyout option goes away for any billings more than a
  year old.
\item
  You may still be able to come to an agreement, but don't force them to
  sell.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(FMV\ of\ Time\ =\ Hrs\cdot Rate\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{quote}
The fair market srate calculated above is for calculating slices, not
the buyout price.
\end{quote}

\begin{itemize}
\tightlist
\item
  A normal employee charges an annual rate and gets the benefit of being
  able to keep his slices (subject to termination rules).
\item
  A contract employee charges a contract rate and, in exchange for a
  higher rate, is subject to a buyback.
\item
  If the contractor's going to be working with you over an extended
  period of time, it'd be better to negotiate a fair market salary and
  include them as an employee, rather than a contractor. Use contractors
  for limited engagements.
\end{itemize}

\subsubsection*{Ideas}

{\label{856108}}

\begin{itemize}
\tightlist
\item
  In the context of fairness, slices are only given when the FMV is put
  at risk, and the way to determine the FMV of an idea is to determine
  what kind of compensation an inventor would otherwise receive.
\item
  In the non-startup world, an inventor of an idea often receives a
  royalty on revenues.
\item
  Royalties generally apply to ``the'' idea that is the idea upon which
  a company is founded. Ideas generated ``on the job'' usually don't get
  royalties, since it is part of your job to come up with new ideas.
\item
  The slicing pie model uses the FMV of unpaid royalties to calculate
  slices.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(FMV\ of\ Ideas\ =\ Royalty\ Rate\cdot Revenue\ Generated\ from\ Ideas\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{itemize}
\tightlist
\item
  This assumes, of course, that the revenue generated can be directly
  attributed to the idea.
\item
  Not every idea deserves a royalty. The idea has to enable a business
  to generate revenue and create a competitive advantage.
\item
  For this to be true, the idea has to be good and unique enough that it
  creates some sort of ``ownable'' intellectual property, usually in the
  form of a patent or copyright.
\item
  In some cases, the time and money spent developing the idea before the
  company started could be translated into slices using the relevant
  calculations. In these cases, the development of the idea would be
  part of the development of the company and the royalty wouldn't apply.
\end{itemize}

\subsubsection*{Relationships}

{\label{649962}}

\begin{itemize}
\tightlist
\item
  Relationships are valuable when and if they generate revenue,
  investment or other financial benefit.
\item
  A well-connected person who simply makes introductions may not deserve
  slices. But a person who can help convert them into value certainly
  does.
\item
  Relationships turn into value when they lead to revenues, investments,
  or other formal relationships with the company.
\end{itemize}

\subsubsection*{Customers}

{\label{826204}}

\begin{itemize}
\tightlist
\item
  When relationships turn into sales, the individual responsible for the
  sale is generally entitled to a sales commission on the revenue
  generated.
\item
  Rates vary by industry, but a commission of 5\%-10\% is typical.
\item
  Pay the rate appropriate for your industry and make sure you pay the
  same commission to all salespeople.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(FMV\ =\ Revenue\cdot Commision\ Rate\ \left(\%\right)\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{itemize}
\tightlist
\item
  A commissioned sales person usually receives a sales commission in
  addition to a base salary, which is often smaller than the others in
  the firm at a similar level.
\item
  In some cases, you can provide one commission rate on the initial sale
  and a lower commission rate on subsequent sales.
\item
  Whoever's responsible for generating the revenue deserves the
  commission. If someone hands your salesperson a business card from
  someone they met at a party and your salesperson does all the work,
  your salesperson deserves the pie.
\item
  Only offer slices to individuals who drive sales. A casual
  introduction probably isn't good enough.
\item
  It's important to determine, in advance, when you're going to
  recognize the sale. It is recommended to enter sales on a monthly
  basis and only counting cash collected during the month.
\end{itemize}

\subsubsection*{Investors}

{\label{726238}}

\begin{itemize}
\tightlist
\item
  Similar to generating revenue, when someone's relationship creates a
  new investment, that person would be entitled to a finder's fee.
\item
  They should do more than just make an introduction; they should stay
  active throughout the process as needed.
\end{itemize}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(FMV\ =\ \left(First\ Million\cdot5\%\right)+\left(The\ Rest\cdot2.5\%\right)\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\subsubsection*{Employees}

{\label{617704}}

\begin{itemize}
\tightlist
\item
  Sometimes a relationship will turn into a new hire. Choose an amount
  you're comfortable with and offer it to anyone who refers an employee.
\item
  Typically, you'd wait at least 6 months before providing slices, so
  you'll have time to make sure the employee sticks around. £250-£500 is
  a good start.
\item
  Referral fees can be a great way to reward current employees for
  participating in the recruitment process.
\end{itemize}

\subsubsection*{Facilities}

{\label{800193}}

\begin{itemize}
\tightlist
\item
  If someone contributes office or warehouse space, they would receive
  slices instead of rent.
\item
  The FMV is equal to the amount of money the space would command on the
  open market if there was a willing tenant.
\end{itemize}

\begin{quote}
It's important to note that the startup should only pay (in slices) for
the space that is needed for the startup. If the landlord gives them 20
offices and they only need four, they should only have to pay for four.
\end{quote}

\begin{quote}
\begin{quote}
\begin{quote}
\begin{quote}
\(FMV\ =\ Market\ Rate\ Rent\ of\ Space\ Used\)
\end{quote}
\end{quote}
\end{quote}
\end{quote}

\begin{quote}
To calculate slices contributed from non-cash contributions, determine
the fair market value of the contribution and multiply by the non-cash
multiplier.
\end{quote}

\section*{Recovery Framework}

{\label{478372}}

\begin{itemize}
\tightlist
\item
  Absentee owners are individuals who own part of a company, but are no
  longer actively involved, referred to as ``dead'' equity.
\item
  Professional investors tend to avoid investing in companies with too
  many absentee owners, so the company needs a mechanism to recover
  shares or slices from people who leave the company.
\item
  The framework applies to just about anyone who separates from the
  company. There are a couple of exceptions for contractors and
  advisors, but for the most part, in~\emph{Slicing Pie} everyone gets
  the same treatment.
\end{itemize}

\subsection*{Nature of Separation}

{\label{376629}}

\begin{itemize}
\tightlist
\item
  The recovery of the slices is dependent upon both the nature of the
  separation and the nature of the relationship with the individual.
\item
  There are four primary reasons -
\end{itemize}

\begin{quote}
\begin{itemize}
\tightlist
\item
  Fired for Good Reason
\item
  Fired for No Good Reason
\item
  Resigned for Good Reason
\item
  Resigned for No Good Reason
\end{itemize}
\end{quote}

\begin{quote}
``Fired for Good Reason'' might be called ``Terminated for Cause'', for
instance. In the UK the terms ``Good Leaver'' and ``Bad Leaver'' are
common.
\end{quote}

\subsubsection*{Fired for Good Reason}

{\label{394299}}

\begin{itemize}
\tightlist
\item
  Being fired for good reason means that the employee's~\emph{behavior}
  led to a management decision to fire the person.
\item
  Performance-related issues are the most common. But, if there's a
  performance issue, the individual must be given chance to correct
  their behavior.~\emph{At least two warnings} are recommended with a
  clear outline of the issue and what needs to be done to correct it.
\item
  Other good reasons to fire someone would be stealing, sexual
  harassment, threatening coworkers, drug abuse, and other extreme
  behavior.
\item
  When an employee is fired for good reason, their decisions negatively
  impact the company. Consequently, they'll~\emph{lose} any slices
  allocated from contributions~\emph{except} supplies, equipment and
  cash contributions which would be recalculated~\emph{without} the
  multipliers.
\item
  Additionally, the company has the right (but, not the obligation) to
  buy back the equity in an amount of cash equal to the outstanding
  slices.
\item
  Lastly, the employee should agree not to compete directly with the
  company or cause the other employees to leave.
\item
  Removing the multipliers has created a consequence for the employee.
  Knowing that this is the consequence forces employees to think twice
  before slacking off and hurting the company, or choosing to engage in
  other negative behaviors.
\end{itemize}

\subsubsection*{Fired for No Good Reason}

{\label{876459}}

\begin{itemize}
\tightlist
\item
  If the employee is fired through no fault of their own, they get
  to~\emph{keep} all their slices. The company can offer to buy slices
  back in an amount of cash equal to the outstanding slices, but the
  employee should not be obligated to sell.
\item
  The company has to deal with the inconvenience of having ``dead''
  equity or buying it back at a very high premium. Keeping the
  multipliers has created a consequence for the company, forcing the
  management to think twice before letting someone go for no reason.
  This protects the employee from the decisions made by the management
  that negatively impact their future.
\end{itemize}

\begin{quote}
There are a number of reasons a person would be fired for no good
reason, including a change in strategy, reduction in force, elimination
of redundant position, or ``just because''. Most jobs (at least in the
US) are considered ``at will'', meaning the company can fire anyone, for
any reason, at any time.
\end{quote}

\begin{itemize}
\tightlist
\item
  The company can't prevent the individual from going to work for a
  competitor either. This doesn't mean the person can steal ideas and
  customers, but it does mean they can go join the competition. However,
  the company~\emph{would} be within their rights to ask for a
  non-solicitation agreement which prevents the employee from hiring the
  company's employees within a specified period of time (usually one
  year).
\end{itemize}

\subsubsection*{Resigned for Good Reason}

{\label{583073}}

\begin{itemize}
\tightlist
\item
  There are well documented legal reasons as to why a person would be
  entitled to resign for ``good reason'' that are often found in
  employment contracts.
\item
  The employee wouldn't~\emph{have} to leave, but they can if their job
  is clearly no longer what they signed up for. If they stay, however,
  they can't use these as good reasons later on. The good reasons are
  include:
\end{itemize}

\begin{quote}
\begin{itemize}
\tightlist
\item
  \emph{Adverse change in title or responsibilities}. If the Vice
  President of Marketing was demoted to the Head Burger Flipper, the
  person would have a good reason to leave.
\item
  \emph{Adverse change in compensation that doesn't affect other
  participants at the same level}. If the management team cuts the
  individual's salary or raises their own by a significant amount, but
  doesn't take similar action against others at the same level.
\item
  \emph{Relocation of the company more than 50 miles from its original
  location}. The person may not be able to manage the commute. Extending
  the commute puts an unfair burden on the employee.
\item
  \emph{Death or disability}. This happens, unfortunately.
\item
  \emph{Adoption of the Slicing Pie model after a fixed-split agreement
  is in place.} If you're retrofitting~\emph{Slicing Pie} a person may
  want out of the deal. In fact,~\emph{any} unexpected change of a
  person's equity would be good reason.
\item
  \emph{Changes to Pie Settings}. This, in effect, changes the
  compensation program.
\end{itemize}
\end{quote}

\begin{quote}
Leaving a company for good reason is essentially the same as being fired
for no good reason. The employee gets to keep all their slices. The
company can offer to buy back the slices for an amount of cash equal to
the outstanding slices, but the employee shouldn't be obligated to sell.
They shouldn't be asked to agree to a non-compete.
\end{quote}

\subsubsection*{Resigned for No Good
Reason}

{\label{946646}}

\begin{itemize}
\tightlist
\item
  The last reason for separation is when someone quits for their own
  reasons unrelated to the firm. Perhaps they no longer believe in the
  company's vision, perhaps they found a better job somewhere else, or
  perhaps they won the lottery and want to retire. It may be a good
  reason for them, but not for the company.
\item
  They will~\emph{lose} any slices allocated from
  contributions~\emph{except} supplies, equipment and cash contributions
  which would be recalculated~\emph{without} the multipliers. The
  company may buy back the slices if they have the money and a
  non-compete/non-solicitation agreement would be appropriate.
\end{itemize}

\begin{quote}
This is the same consequence as being fired for good reason. If
employees make choices that adversely impact the company, they have to
suffer the consequences.
\end{quote}

\subsubsection*{Loyal Employees}

{\label{765926}}

\begin{itemize}
\tightlist
\item
  Sometimes, a loyal employee works hard, but has to resign to make ends
  meet. It's true they may be leaving the company in the lurch, but
  taking back their equity may not seem like the right thing to do.
\item
  In these case, it is recommended the person reduce their hours, but
  stay involved on a part-time basis. This'll allow them to keep their
  slices and allow the company to continue to benefit from their
  expertise.
\end{itemize}

\begin{quote}
\begin{itemize}
\tightlist
\item
  You could also adopt a rule which states that any slices over a
  certain number of months or a pre-set percentage stay in place in the
  event of resignation with no good reason. This'll give good employees
  who have to leave an option to do so without losing everything. It's
  important to have~\emph{some} consequences, but people's personal
  lives may not always stay compatible with working with a startup.
\item
  Do not do this for people who are fired for good reason. It's best to
  sever ties completely with someone who may have left on anything but
  amicable terms.
\end{itemize}
\end{quote}

\subsection*{Buyout Price}

{\label{304921}}

\begin{itemize}
\tightlist
\item
  The price will be the number of outstanding slices times the currency
  rate.
\item
  When you buy someone out who was terminated for good reason or
  resigned for no good reason you're essentially paying them back for
  cash and tangible contributions. Their ``investment'' of time, money
  and other contributions didn't pay off, which is fine because leaving
  was their fault or choice anyway.
\item
  However, when you buy someone out who was terminated for no good
  reason or resigned for good reason, they compensated for the risk they
  took. They are getting what they would've been paid on the open market
  times the multipliers.
\item
  It's not uncommon for the people who are bought out to be the only
  people who walk away with anything from the startup. This is because
  startups pay people who leave the company and then the company goes
  out of business, leaving the people who stayed with nothing.
\end{itemize}

\subsection*{On-The-Job Buyouts}

{\label{614588}}

\begin{itemize}
\tightlist
\item
  In some cases, the company can offer to buy back slices from
  participants even though they are staying with the company.
\item
  If the company uses company money to buy back individual's slices, the
  slices will vanish from the money and the Pie will recalculate
  everyone else's shares, which means they will all have a higher
  percentage.
\item
  When someone sells slices back to the company they're getting a chunk
  of money and forgoing a share of future profits.
\item
  The company can make any offer it wants, it just can't force a
  buyback.
\end{itemize}

\subsubsection*{Employee Requests}

{\label{566079}}

\begin{itemize}
\tightlist
\item
  If an employee needs cash, they can~\emph{request} a buyout. This's
  different from a company offer because if the employee is making the
  request, they are essentially ``backing out'' of the deal and removing
  their at-risk contributions.
\item
  If the company has the money, it can provide lump-sum payments which
  will reduce the employee's at-risk contributions - starting with cash
  contributions - up to their total at-risk contributions. You'll have
  to recalculate their slices after paying them.
\item
  Sometimes employees need the money or can't tolerate the risk
  associated with startups. There's nothing wrong with this and
  providing these payments may enable the company to retain people who
  might otherwise resign.
\item
  Be careful, however, that the employee isn't simply trying to get paid
  before quitting. Paying someone just to have them quit is not in the
  spirit of~\emph{Slicing Pie}. Consider waiting before making payments
  or paying in installments.
\end{itemize}

\subsection*{Claw Back}

{\label{997544}}

\begin{itemize}
\tightlist
\item
  When someone resigns for good reason, or is fired for no good reason,
  the company can offer to buy them back at an amount equal to the
  outstanding slices that were calculated with the multipliers.
\item
  It's not fair for the company to buy back the slices and then turn
  around and sell the company for a far better return. If a transaction
  takes place~\textbf{\emph{within a year}} of a buyout that would have
  led to a higher return, the person should be paid the difference. This
  is known as a ``claw back'' and it prevents the managers from firing
  everyone, buying back their slices at one price, and then selling the
  company at a higher price.
\item
  If the person was fired for good reason or resigned for no good
  reason, the claw back would not apply.
\end{itemize}

\subsection*{Caveats}

{\label{954107}}

\subsubsection*{Advisory Board Members}

{\label{116745}}

\begin{itemize}
\tightlist
\item
  Advisors are usually successful people who may have unusually high
  fair market salaries. So high, in fact, that it may not be practical
  to pay them such a high rate.
\item
  It is recommended to cap their hourly compensation at 200 slices/hr
  and asking them to contribute at least ten hours before cutting them
  in. For this, they enjoy the benefit of being~\emph{immune to
  termination}.
\item
  Unless there were extenuating circumstances, you wouldn't be able to
  fire an advisor who took the capped hourly slices option. Instead,
  you'd simply stop going to them for advice and they would simply stop
  earning slices.
\item
  However, you'd not be able to erase their slices if you fired them.
  So, when it comes to advisory board members, there's rarely such a
  thing as termination for cause. Advisors would typically keep their
  shares with the multipliers.
\item
  However, If they told you they no longer wanted to work with you, this
  is the equivalent of resignation for no good reason and you could
  recover their slices.
\item
  If the advisor doesn't want the slices cap then you have the option of
  giving them a rate that more accurately reflects their market rate,
  but they wouldn't enjoy the benefit of protection against termination.
\end{itemize}

\subsubsection*{Investors}

{\label{322217}}

\begin{itemize}
\tightlist
\item
  Friends and family investors who put cash into the Well can't really
  be fired either as long as their primary role is investment. They'd
  keep their slices with the multipliers, no matter what happens. You
  could offer to buy them out with the 4x multiplier, but they shouldn't
  be forced to sell.
\item
  If an investor~\emph{wants} their money back they can ask for it,
  which is the same thing as resignation for no reason. In these cases,
  you'd have to pay them back without the multiplier if and when you can
  afford it.
\end{itemize}

\subsubsection*{Contractors}

{\label{733481}}

\begin{itemize}
\tightlist
\item
  If you're using a contractor schedule, the termination rules wouldn't
  apply. Once the contractor's slices are accounted for, you can't fire
  them and get the slices back. You can, however, offer to buy back
  slices or pay them if they request payment.
\end{itemize}

\subsubsection*{Rent and Royalties}

{\label{734077}}

\begin{itemize}
\tightlist
\item
  If a terminated participant is entitled to a royalty for their
  intellectual property, they'll continue to contribute slices unless
  the company pays the royalty in cash.
\item
  If the terminated participant owns the facilities, they'll continue to
  contribute slices unless the company starts paying rent.
\end{itemize}

\begin{quote}
A claw back provision should be included with any sale that allows the
employee to benefit from the full price of the shares in the event the
company is sold at a higher price within a year.
\end{quote}

\section*{Freezing the Pie}

{\label{583099}}

\begin{quote}
The \emph{Slicing Pie} model is best suited for early-stage companies
who don't have much cash.
\end{quote}

\begin{itemize}
\item
\end{itemize}

\par\null

\subsubsection*{}

{\label{287786}}\par\null

\selectlanguage{english}
\FloatBarrier
\end{document}

