Recovery Framework
Outgrowing the Slicing Pie Model
For startup companies, slices represent the relative risk taken to form a company. For established companies with decent cash flow the nature of the risk is different. When people are getting paid their fair market rate they are no longer taking the ...
Freezing/Terminating the Pie
The combination of the allocation and recovery frameworks provide a universal structure for awarding equity or profit interests in a bootstrapped startup. By agreeing to the rules, in advance, and holding all participants accountable to the rule, ...
Buyback
In some cases, the company can offer to buyback slices from participants. When this happens individuals are paid by the company. One slice = one unit of currency depending on the currency your fund is using. When the company buys the slices the ...
Rent and Royalties
If a terminated participant is entitled to a royalty for their intellectual property they will continue to contribute slices unless the company pays the royalty in cash. Similarly, if the terminated participant owns the facilities they ...
Investors
Friends and family investors who put cash into the Well can’t really be fired either, even if they are contributing other things as long as their primary role is investment. They would keep their slices with the multipliers, no matter what happens. ...
Advisory Board Members
Because advisors are usually successful people who may have acquired some wealth, they may have unusually high fair market salaries. So high, in fact, that it may not be practical to pay them such a high rate. I recommend capping their hourly ...
Claw Back
As mentioned before, when someone resigns for good reason, or is fired for no good reason, the company can offer to buy them back at an amount equal to the outstanding slices that were calculated with the multipliers. This represents a very nice ...
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 ...
Resign for No Good Reason
The last reason for separation is when someone quits for their own reasons unrelated to the firm. Perhaps they no longer believe in the company’s vision, perhaps they found a better job somewhere else, or perhaps they won the lottery and want to ...
Resign for Good Reason
Sometimes, a company doesn’t outright fire someone, but they make decisions that essentially “push” an employee out. There are well-documented legal reasons why a person would be entitled to resign for “good reason” (also called, “for cause”) that ...
Fired for No Good Reason
On the flip side, if the employee is fired through no fault of her own (also called “without cause”), she gets to keep all her slices. The company can offer to buy the slices back in an amount of cash equal to the outstanding slices, but the employee ...
Recovery Framework Overview
After slices in the company have been allocated, it may be necessary for the company to recover some or all of it in the event of separation from employees. Absentee owners are individuals who own part of a company, but are no longer actively ...
Fired for Good Reason
Being fired for good reason (sometimes called “for cause”) means the employee’s behavior lead to a management decision to fire the person. Performance-related issues are the most common. If there is a performance issue, the individual must be given a ...