Be careful! The vast majority of founders and those who advise founders attempt to solve this problem with fundamentally flawed logic. The primary mistake is basing the equity split on unknowable, future events such as a founder's expected commitment to the company or the creation of future value.

There is, however, a way to get this right every time.

Startups are unique in that they don't pay for inputs that more established companies are expected to pay for such as salaries and expenses. The amount that most companies are expected to pay is known as the fair market value.

If the company does not pay, the unpaid amount is essentially a bet on the future value of the company. It's impossible to determine the future value of any company, but it's easy to observe the fair market value of the bets.

For two years you have placed bets equal to the unpaid portion of your fair market salary and any expenses covered by your personal or investment dollars.

The new guy will join you and he, too, will place bets in the form of unpaid compensation, etc.

The betting will continue until the company has enough money to start paying at breakeven or Series A investment. When this happens, you can calculate each persons bet relative to every other person.

A person's share of the equity, therefore, should be based on that person's bet. This is literally the only logical way to divide up equity.

This is the basis of the Slicing Pie model for equity splits. It's the only equity model based on observable facts and it is used by startups all over the world.

You can learn all about it at www.SlicingPie.com or by setting up a call with me here on Clarity.fm. As of this writing, I've done almost 800 calls on exactly this topic with hundreds of 5-star reviews.

There are lots of ways to split equity, but only one way that makes it fair.

I'm Mike Moyer and I've had lots of experience. It works great. Since publishing the model in 2012 I haven't had anyone come back to me and complain that it didn't work, but I had hundreds, if not thousands, of people thank me for writing the book. I'd be happy to answer any questions you might have about the model. I promise it will work much better than a traditional model!

You should always give someone what they deserve. Never more and never less.

Most people don't know how to do this so they guess. They try to predict the future or they look for rules of thumb or they try other ways of guessing. Kind of like you are doing now.

The best way to determine this is to consider one person's risk relative to others.

When someone contributes to a startup company and doesn't get paid they are accepting risk. The value of that risk is equal to the fair market value of the contribution they made. For instance, if you could earn $100,000 a year doing whatever it is that you do and you do it for a startup without getting paid you are, in effect, risking $100,000 a year.

Taking risk in a startup company is essentially betting on the future outcome of the startup. If you and I bet $10 on the same hand of Blackjack we are each betting the same amount and, therefore, each deserve exactly half the winnings (if any).

So, the right way to split equity in a startup company is to keep track of what's been contributed, then perform this simple formula:

Individual Ownership (%) = Individual Risk/Cumulative Risk

The model changes over time as more contributions are made. Each day a person contribute their stake would change. This means that at any given time, no matter what changes, who joins or who leaves. Everyone always has exactly the ownership they deserve to have.

Unlike traditional models that require us to predict the future, the relative risk model is based on easily observable values in the market. Everything has a fair market value.

So, the answer to your question is simple. Add up the risk he has taken and divided it by all the risk taken by everyone (including you). Each person's share can be calculated this way and the total will always equal 100%.

On day one, before he's done anything, his ownership will be 0%. As it should be. Over time, as he risks, his % will change based on relative risk.

This is a perfect, unambiguous formula. Every other equity model lays the foundation for disputes later on. Only a relative risk model will give you the fair answer.

I've written a book on this topic, called Slicing Pie, you may have a copy if you contact me through Clarity.fm or SlicingPie.com.

This is a very easy problem to solve with an exact answer. You should use the Slicing Pie model for equity allocation and recovery.

When someone invests time, money, ideas, relationships or anything else into a startup they are taking a risk. The value of that risk is equal to what they would have otherwise been paid by someone who could afford to pay them. This is known as fair market value.

The Slicing Pie model measures relative risk of the various participants and allocates equity accordingly. It converts all contributions to "slices" (a fictional unit of risk) using a function of fair market value and a risk multiplier. So, a person's share is equal to their slices divided by all the slices. The result is a perfect split!

The model also determines the right buyout price (if any) when someone leaves the company.

I've written a book on this topic, called Slicing Pie, and you may have a copy if you send me a note through Clarity or through SlicingPie.com

-Mike

Increasing your effectiveness at a trade show has very little to do with spending more and everything to do with what you and your team actually do while you are in your booth. In my experience, 90% of exhibitors mill around the booth passing out tchotchkes and chewing the fat with whoever stops by their booth.

Next, they lament over how ineffective the show was and wonder if they passed out more expensive items or bought a new booth or threw more parties their results would improve. So, they do this and experience the same results year after year until they come to the conclusion the "trade shows don't work"

The KEY to making it work is having a structured approach to interactions with attendees. Do this right and you will generate more leads that you ever thought possible. I'm talking a 5-10x increase.

I've written a book on this subject and you may have a copy if you email me at mike@TradeShowSamurai.com.

The main point of the model are four steps that I call the "Four Core Arts of the Trade Show Samurai". They are:

1. The Art of Engagement: how you use eye contact and body positioning to get people into your booth to talk.

2. The Art of Intrigue: how you use rehearsed sales messages to get the attendees interest.

3. The Art of Inquiry: how you ask the right questions so you can understand the potential value of the lead. (You will capture this information on a Lead Card (www.blpnt.co/dCA9B), the single MOST IMPORTANT tool you can have at a show.

4. The Art of Disengagement: how to end the conversation gracefully so you can move to the next person.

Using these steps you will capture hundreds of leads at your next show.

I would be happy to explain these to you or you can read the book I'll send you or you can take a look at TradeShowSamurai.com...

-Mike

JotForm.com is GREAT! I've been using it for years and it keeps getting better. The whole thing is drag and drop and you simply add a line of code in a wordpress page or post or other site and the form appears. When you change the form it updates on your site. I use it all the time.

I've tried LOTS of options, but never had one work so well. It's one of the few services that simply works the way it is supposed to so I keep using it.

Also, Zapier (which I haven't used as much) links your forms to other places you need data.

Here are some sample jotforms:

http://mikemoyer.com/contact-mike/
http://www.slicingpie.com/feedback/
http://www.34701.org/fall2014/last-class/

You asked this question a while ago, I just noticed it. I hope it's not too late to convince you that the best way to split equity for three founders is to use a dynamic equity split that will allocate equity based on the actual contributions of the three founders while allowing for the possibility that their individual contributions will be different and may vary over time and you might lose some and add others. If you do a fixed split (like the one you are contemplating) it will not be fair and every time something changes you will have to renegotiate and amend your shareholder agreement.

Your main concern shouldn't be your personal holdings. Your main concern should be to get what you deserve and to make sure that everyone else does too. Contrary to popular belief, there is a way to get this perfectly right.

Most companies make the mistake of doing fixed equity splits at the outset of the venture. This is because most founders and advisers are unfamiliar with the benefits of a dynamic equity program and the ease of implementation.

A dynamic program takes into account the actual contributions of the various participants and allocates equity on the relative risk each participant takes.

In my book on this topic, Slicing Pie, I convert all contributions of time, money, ideas, relationships, supplies, equipment and anything else into a fictional unit called "slices". Every contribution can be converted using a conversion calculation that uses fair market value and a risk factor.

Once converted, it is easy to use slices to determine shares. You simply divide the slices contributed by one person by all the slices and you have an exact %. It is perfectly fair. It changes over time to make sure that everyone gets what they deserve all the time.

There is a recovery framework too, which dictates how equity is recovered from individuals in the event of separation from the company. In some cases they lose equity, in some cases there is a buyout. The model will tell you exactly what the buyout should be too.

Every other model is less fair. However, people at startups are taken advantage of so often they might not even notice (at first). When they do notice, relationships begin to deteriorate fast.

Like I mentioned earlier, I wrote a book on this topic and you can have a copy if you contact me through SlicingPie.com

You asked this 9 months ago and by now you have probably run into problems with your 60/40 split. You probably realized that commitment levels have changed, the team has changed, the amount of money you needed has changed, and any other number of changes have forced you to renegotiate your split which was probably a painful process and you may still feel uncomfortable with the split. I hope I'm wrong, but this is a very typical scenario with fixed equity splits.

This problem could have easily been solved using a dynamic equity split. Each contribution of cash, time, ideas, supplies or anything else would be accounted for and each person would have exactly what they deserve.

The model I designed is called a Grunt Fund. It assigns a fictional value, called "Slices" each input based on the fair market value of that input and a risk multiple. A person share at any given time, therefore, is their number of slices divided by the total slices. It gives you an exact number.

I have written extensively on this topic and have a web site at SlicingPie.com. If you contact me through the site I will send you a copy of the book I wrote on this subject.

I hope all is well!

The best way to go--by far-- is to use a Grunt Fund. A Grunt Fund is a dynamic equity split model designed to provide a perfectly fair equity split for founders of bootstrapped companies. It will tell you exactly how much you and your partner and later partners and employees deserve. It's based on the relative contributions you have each made and changes over time as new contributions are made to make sure that at any given time you and your partners always have what they deserve to have- no more and no less.

The basic model is this: All contributions of time, money, ideas, relationships, supplies, equipment or anything else, can be converted into a fictional unit I call "slices". A slice is calculated based on the fair market value of the contribution and a risk multiplier.

To determine shares you simply apply this calculation:

Individual share = individual slices ÷ total slices

There is also a recovery framework that outlines what happens to shares when someone leaves the company.

I call this a "Fair & Square" split. Fair, in that it always tells you exactly the right split. And, square, because it accounts for all contributions.

I wrote a book on this model that provides detailed implementation instructions. There is also an online calculator tool on my web site. If you contact me through SlicingPie.com, I'll send you a copy of the book!

You're going to love it.

One word: Royalties

This means you generate the idea and develop it enough to look interesting to a larger company who would be willing to pay you a royalty for your idea. This happens all the time. Rock stars, authors and scientists routinely license their creative ideas to other companies who pay them a royalty. Anyone can do it.

Your business, therefore, would be a think tank. You (and your team, if you have one) would consider the world's problems, see what kinds of companies are trying to solve those problems, and then develop compelling solutions that they can license from you.

You have to be able to sell your idea and develop a nice presentation, a little market research and an understanding of basic trademark and patent law.

The nice thing about doing this is that if you develop enough cool ideas you will have royalties coming in from a lot of different sources, this creates a stable, passive revenue stream that requires little or no work to maintain.

Start in your spare time and plan on the process taking 3-5 years. Set a goal to have a few products in the market that provide enough revenue (royalties) to cover your basic living expenses. Then you can quit your day job and dedicate more time and increase the momentum. A good idea business should have dozens, if not hundreds of license contracts generating royalties.

It's possible to pull this off. And it is a fun job (I'm speaking from experience).