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The Founders’ Pie Calculator

August 26, 2005 at 09:21 | Print This Post Print This Post

Frank Demmler tackles the tricky problem of allocating equity among co-founders:

Several weeks ago, we took a look at the founders’ pie. I noted that frequently the founding team divides 100% by the number of founders.

I also cautioned that this is the WRONG WAY!

I then went on to identify the factors that should be considered when making these decisions.

Since then, I have had several people tell me that while what I wrote certainly made sense, it wasn’t very helpful. They said that when it came to “rug cutting time,” absent an alternative method, equal shares was the only method that seemed to be “fair.”

As a public service, I have “invented” a Founders’ Pie Calculator. As you will soon see, this calculator is not particularly profound. In fact, I’m sure I haven’t “invented” it, but, at the same time, I have never seen it before. [Caution: perhaps there’s a fatal flaw that I haven’t considered.]

Its primary benefits are that it provides a way to quantify the elements of the decision making process, and that it appears to be logical and fair.

Via Anthony Cerminaro.


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2 Responses to “The Founders’ Pie Calculator”


  1. David St Lawrence (1 comments.)
    October 3rd, 2005 at 20:11

    Having been one of the founders of an early real-time computer company, I think your Founder’s Pie Calculator is right on the money.

    We used a two tier system where the founders in the upper tier were allowed to put in more money and the founders in the lower tier were limited to about one third of that amount. This enabled us to begin full-time operation with 19 employees and carried us until we obtained outside financing.

    The problem was that the president took an equal share with the rest of the top level founders and he should have had five to eight times as much because of his contribution. As the company became successful, the inequities began to eat at him and his actions eventually destroyed the company.

    A non-intuitive but equitable division of the shares per the Founder’s Pie Calculator would have gone a long way toward alieviating this situation.

    Frank Demmler is to be congratulated on taking a step in the right direction.


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