During software engineer Ryan McGeary’s nine years working at seven startups, he has weathered contentious dramas, legal battles, and broken friendships stemming from arguments about how equity should be shared among founders and early investors. At his latest venture, BusyConf, a two-year-old Web service for conference planners, based in Leesburg, Va., his experience was frustratingly familiar—“things got unnecessarily ugly”—and resulted in him buying out his partner earlier this year. “There’s got to be a better way” to handle equity stakes, McGeary says.
Recently he stumbled across just that: so-called dynamic equity splits, an idea making the rounds among Chicago startups. The concept is described in a book called Slicing Pie, by Mike Moyer, an adjunct professor of entrepreneurship at Northwestern University and founder of venture capital firm Lake Shark Ventures. Basically, Moyer’s idea assigns monetary value to every tangible and intangible contribution individuals make to a startup, from intellectual property and relationships to time and cash. Each founder keeps track of his or her hours, accumulating equity in a “grunt fund,” based on a formula that assigns a weight to each contribution that person makes.