A good model on how to allocate equity in bootstrapped startups. The author also offers a software that simplifies the process.
Buy on Amazon.com.
It’s not about the money, people want to know that their contribution is valued. A “Pie” is a promise to allocate equity when the time comes. Calculate the relative value that each person brings. The percentage of pie for each person remains fluid and changes from day to day.
The main value ingredients:
- Time. Calculate your market hourly rate and multiply by two. If receiving a salary, then the calculation is based on whatever compensation is put at risk.
- Cash and business-enabling equipment is the actual value times four.
Allocate equity at the point of diminishing returns or when the idea becomes a business that has a predictable revenue stream and cost structure.