Slicing Pie

            Buyout Price

            It’s not uncommon for the people who are bought out to be the only people who walk away with anything from the startup. This is because startups pay people who leave the company and then the company goes out of business leaving the people who stayed with nothing. This may be unavoidable.

                        The Slicing Pie Model will tell you the fair buyout price so you won’t overpay or underpay. The price will be the number of outstanding slices times the currency rate. So, if the terminated participant has 1,000 slices and your fund is operating in dollars, the buyout price is $1,000.

                        When you buy someone out who was terminated for good reason or resigned for no good reason you are essentially paying them back for cash and tangible contributions. Their “investment” of time, money and other contributions didn’t pay off which is fine because it was their fault anyway.

                        However, when you buy someone out who was terminated for no good reason or resigned for good reason they get compensated for the risk they took. They are getting what they would have been paid on the open market times the multipliers. This provides a nice rate of return.

                        Traditionally buyout prices are negotiated when the employee leaves. This requires everyone to guess what the current price is and inevitably leads to arguments about valuation. The Slicing Pie buyout price does not imply a valuation, it simply implies compensation.

            Updated: 04 Apr 2016 11:21 AM
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