![]() ![]() If someone has 10%, for instance, when does he or she dilute? When you bring on a new person? When you raise additional funds? When you reach Series A? Depending on your deal, you can introduce Slicing Pie at different times.įor example, if your deal is 10% at Series A you can use Slicing Pie for the Pie until Series A and simply carve out a chunk for the investor. It starts with clarifying your current deal. If you are teamed up with someone like this it’s too bad and you’ll have to work around them. The other reason is that they do understand it, but don’t mind taking advantage of others. ![]() The first is that they don’t fully understand it in which case they need to read the books and the blog or set up a call with me. In my experience there are two reasons why someone would not want to use Slicing Pie. You can adjust the split with the retrofit tool: Once they understand the model they should see that it’s in the best interest of the company to use Slicing Pie. Most people want to be fair, so I would expect both of them to be willing to adapt. It may allow your partner and investor to maintain a larger share, but they would be doing so at the expense of other partners and investors. ![]() More details on how to determine fair market value for different kinds of contributions can be found in the Slicing Pie Handbook. If you can’t observe a fair market value there may be no market for the contribution and, therefore, no fair market value. It’s much easier and more reliable than trying to predict the future. Most of the time fair market value is easy to observe in the market place. In the case of a commodities trader, I might get paid a moderate base salary plus a percentage of the money I make for my employer. My fair market rate would be whatever a person with my skills would get paid for my skills on the open market. If, however, I’m joining a startup commodities exchange my skills may be applicable. I need to go where there is a demand for my skills. In order to create value from my skills I need to move somewhere that I can apply my skills. If I am a highly skilled commodities trader in a town with no commodities exchange my skills have little or no value. If I’m a computer programmer in San Francisco my fair market value may be much higher than someone with the exact same skills in Bangladesh. A snow shovel has little or no value in Hawaii, but great value in Minnesota. The fair market value, therefore, lies at the intersection of the product or service being offered and the market to which it is being offered. ![]() If, however, I am a professional worm farmer and actively deal in worms, my worms have a fair market value. The time I spent digging them up has the fair market value of a landscaper’s rate with similar skills to my own. The worms in my yard may have value to someone, but I, personally, have no access to the worm market so my contribution of worms is more or less valueless. It’ a risky bet, which is why Slicing Pie uses a risk multiplier to calculate the number of slices.Įverything has a fair market value…as long as there is actually a market for the product or service and the individual in possession of the product or services has the wherewithal to reach that market. When someone contributes something of value to a starting company they are, in effect, betting the fair market value of the contribution on the future outcome of the company. Given these conditions, an asset’s fair market value should represent an accurate valuation or assessment of its worth and can be used in the Slicing Pie model.įair market value is the price a person would have been paid by someone who could afford to pay for the same contribution, this is similar to opportunity cost. A reasonable time period is given for the transaction to be completed.Prospective buyers and sellers are reasonably knowledgeable about the asset they are behaving in their own best interests and are free of undue pressure to trade.The fair market value is the price that a given property, asset or service would fetch in the marketplace, subject to the following conditions: Slicing Pie uses fair market value as part of the formula for determining the perfect allocation of equity in a startup company. ![]()
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