plumtucker

This is an extremely common situation and, as you might guess, totally unfair. The portion of your salary that is unpaid is essentially a "bet" on the future outcome of the company. You bet more every day, as do others. The betting continues until the company can afford to pay everyone. At that point it will be easy to calculate the value of everyone's bets...yours, theirs, everyone.

Your share of the equity should be based on your share of the bets.

Think about it. This is the only logical solution. Why should you ever get a percentage that is less than your share of the bets??

Your 1% is a made up number that represents nothing. On day one 1% is way to much because you've done nothing. On day 435 it's probably not enough.

To calculate how much you should have use the Slicing Pie retrofit calculator: https://slicingpie.com/slicing-pie-retrofitforecast-guide/

You don't have to get screwed.

Think of your startup as a gamble (because it is). People place "bets" on the future profits or sale price. Bets are placed in the form of UNCOMPENSATED time, money, ideas, relationships, supplies, equipment and facilities.

Your employee is betting 30% of his market salary.

You, the original founder, are betting part or all of your market salary plus cash to pay the 70% of the first employee's salary and anything else you have bought.

Later you will add more people and they will place bets too.

You have no idea how long the betting will last and how much will be bet until the company breakseven or raises a Series A round.

At that point you will be able to see how much each person bet.

Their equity should be based on their bets.

For example. If you and I start a company and we each bet $100,000 (in various forms) before we reach breakeven we each deserve 50% of the equity. However, if you bet $300,000 and I only bet $100,000, you should get 75% and I should get 25%.

Anything else isn't fair.

This is the essence of the Slicing Pie model (www.slicingpie.com). The Slicing Pie model uses the fair market value of a participant's contribution to not only determine a fair equity split, but also a fair buyout (if any) when someone leaves the company.

Traditionally, equity splits have been based on rules of thumb, industry averages, negotiations or guesses about the value of the company and a person's promised contributions.

Traditional splits are always wrong.

Slicing Pie is used all over the world.

This formula is a way to unwind an unfair equity split. It is common for founders to take a disproportionate chunk of equity at the outset of the venture even though they may not really deserve it.

The Slicing Pie model ensures that each person on the team has exactly what they deserve to have. This would avoid unfair splits at the end that would need to be readjusted.

Here is an article about how it works: http://www.slicingpie.com/how-to-use-a-dynamic-equity-split-...

It's impossible to determine risk in a startup. Later participants may be entering a higher-risk situation than early participants. Startups are too volatile

http://www.slicingpie.com/the-magic-of-mutipliers/

I wrote Slicing Pie!

The problem Andrew is trying to solve, I think, is the core problem with fixed equity splits that give certain people an unfair share. The Slicing Pie model allocates equity fairly so no one person would have a disproportionate amount unless they made disproportionate contributions.

If you used this model with a traditional fixed split you would spread out the wealth a bit. If you used it with the Slicing Pie model you would be breaking a perfectly fair split.