Dynamic Equity Splits: Role-Specific Time Explained

Dynamic equity splits adjust ownership based on actual contributions, not fixed percentages. Here's how it works:

• What It Is: Equity changes over time, reflecting each team member's input - like hours worked, money invested, or other resources.
• Why It Matters: Traditional splits often become unfair as roles evolve. Dynamic splits ensure fairness by aligning equity with measurable efforts.
• How to Track Contributions: Use tools to log time, categorize activities, and regularly update equity. Platforms like SliceFair simplify this process.
• Role-Based Differences: Contributions vary by role (e.g., CEOs focus on strategy, CTOs on technical work). Equity should match each role's value and risk.
• Key Tools: Systems like the Slicing Pie framework or SliceFair help automate and track equity adjustments.

Bottom Line: Dynamic equity splits ensure ownership reflects real contributions, motivating teams and keeping things fair as startups grow.

Role-Based Time Contributions

Startup roles bring unique value through time and expertise. Recognizing these differences is key to creating fair equity splits that reflect each member's influence on the company's achievements.

Common Startup Roles

The way time is spent varies significantly by role. For technical founders, hours spent coding directly contribute to building the product. Meanwhile, C-level executives focus on strategy and empowering the team to drive growth. Equity compensation should align with the level of risk each member takes, while fair salaries can reduce the need for additional equity .

As Sam Corcos, Co-Founder and CEO of Levels, explains:

If the company is a steam engine, my job is to be the lubricant - I don't have any real deliverables other than to make sure all the other parts are running smoothly .

Here’s a breakdown of common startup roles and their typical contributions:

Role	Primary Contributions	Risk Level	Typical Time Focus
CEO	Strategy, Vision, Fundraising	Highest	Leadership, External Relations
CTO	Technical Architecture, IP	High	Product Development
COO	Operations, Team Management	High	Internal Systems
Product Lead	Feature Development	Medium	User Experience
Marketing Lead	Growth, Brand Building	Medium	Customer Acquisition

Measuring Different Contributions

Once roles are clearly defined, measuring contributions accurately ensures fair equity allocation. Different contributions require systematic tracking. For example, during the first two years at Levels, Corcos meticulously logged his time across categories like Engineering, Sales and Marketing, Operations, Strategy, Investor Relations, and Recruiting .

He highlights:

Content scales; your time doesn't .

This underscores the importance of documenting processes and using asynchronous communication to maximize efficiency. Startups can benefit from this approach in several ways:

• Track Strategic Value
  Prioritize activities that support long-term success and growth.
• Enable Team Scaling
  Corcos advises:

  Your job as a CEO is to build fire departments, not put out fires. If you're regularly putting out fires yourself, you're doing it wrong. Focus your time on how to enable others on your team to put out fires themselves .

• Maintain Transparency
  Platforms that allow real-time tracking and feedback can help ensure equity distribution is fair. For instance, companies like Google use Objectives and Key Results (OKRs) to measure performance, while Facebook relies on peer review systems for a well-rounded evaluation . Tools like SliceFair (https://slicefair.co) also offer integrated solutions aligned with the Slicing Pie framework for dynamic equity splits.

To maintain accuracy, track time in 15-minute increments and limit categories to no more than 10 .

Setting Up Time Tracking Systems

To ensure equity distribution is fair and based on actual contributions, set up a precise, role-specific time tracking system. Then, create clear guidelines to determine the value of each role.

Role Value Guidelines

Start by analyzing the responsibilities, required skills, and contributions unique to each role. Use this analysis to define baseline compensation and apply role-specific multipliers. For example, executive roles often have higher rates compared to technical leads. These baselines directly impact equity calculations, ensuring allocations align with the value each role brings to the table.

Time Tracking Tools

Modern tools can simplify tracking contributions and maintaining accurate records. For example:

• Pie Slicer: A platform built for the Slicing Pie framework, priced at $19.95 per month or $199.95 annually .
• SliceFair: An integrated solution offering real-time equity tracking, custom rates, and automatic updates based on actual input.

When choosing a tool, consider factors like:

• Ease of integration
• Customizable role-rate settings
• Real-time reporting capabilities
• Cost-effectiveness for your team size

Once you've selected a tool, implement a structured protocol to ensure consistent and reliable time logs.

Recording Time Effectively

Accurate time tracking requires proper tools and clear processes. Use these best practices:

• Track in 15-Minute Increments
  Logging time in 15-minute blocks strikes a balance between precision and practicality. This method, adopted by Levels' CEO Sam Corcos, is both detailed and manageable .
• Create Clear Categories
  Define a simple set of categories to classify contributions. Focus on activities that directly drive growth and add value to the company.
• Document Regularly
  Use asynchronous communication tools and document processes consistently. This reduces the need for repetitive meetings and ensures a clear record of contributions.

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Equity Calculations by Role

The Slicing Pie framework offers a structured way to convert tracked time into equity shares, reflecting the value of each role while maintaining transparency.

Equity Distribution Methods

The key to calculating equity based on roles lies in focusing on relative value instead of fixed percentages. Contributions are measured in "slices", which represent the fair market value of unpaid work. Here’s how the process works:

• Calculate Base Value: Adjust the theoretical salary of each role based on actual hours worked. For example, if a CTO’s monthly salary is $10,000 but they worked 120 hours instead of the expected 160, their base value is adjusted proportionally.
• Apply Role Multipliers: Factor in responsibility levels and market rates. For instance, in December 2023, SoulBeat applied a 4x multiplier for full-time technical roles, while part-time contributions had smaller multipliers .

"A dynamic equity model, on the other hand, will allow you to determine exactly the right number of shares each person deserves based on (and here is the key) the relative value of their individual inputs." – Mike Moyer

These methods evolve as roles change, ensuring equity aligns with current contributions. Adjustments are necessary as team responsibilities shift over time.

Adjusting for Role Changes

When roles transition, equity splits should be recalculated promptly. Follow these steps:

• Document Role Transitions: Record exact dates, changes in responsibilities, and updated time commitments.
• Update Contribution Values: Adjust hourly rates and multipliers to reflect the new role.
• Recalculate Equity Allocations: Update percentages by factoring in past contributions at their original rates and new contributions at revised rates. Prior contributions stay fixed, while future ones reflect the updated parameters.

"The Slicing Pie model is based on observable events and self-adjusts to stay fair no matter what changes over time."

Tools like SliceFair simplify this process by automating calculations, reducing disputes through real-time tracking and automatic updates.

Results and Issues of Role-Based Splits

Benefits of Role-Based Tracking

Tracking equity based on roles can help improve fairness and team productivity. For instance, only 34% of employees report feeling highly engaged at work, and 68% say they lack uninterrupted time to focus on important projects . By implementing systematic tracking, companies can justify equity splits while also encouraging team motivation. This approach creates a foundation for resolving disputes more effectively.

Problem Solving and Disputes

When disagreements arise, it’s important to address them with clear processes in place:

• Document equity decisions legally to avoid misunderstandings down the line.
• Use vesting schedules to protect everyone’s interests.
• Be transparent about distribution criteria so all parties understand the reasoning behind decisions.

"Equity allocation among cofounders is a high-priority, deeply complex issue with significant implications for a startup's future" .

Bryant from CollabsHQ highlights that investors closely evaluate founder motivation through equity splits. Uneven distributions, like 80-20 splits, can raise concerns and potentially deter investment .

Success Stories

Examples from the startup world emphasize the importance of role-based equity tracking. Peter Pham advises:

"The equity should be split based on value creation" .

To make this work, startups need regular reviews, automated tracking systems, clear communication, and strategies to prevent burnout - especially since 76% of employees report experiencing burnout .

Tools like SliceFair (https://slicefair.co) simplify this process by offering automated tracking and real-time equity calculations. These platforms help startups maintain fair and transparent equity splits while minimizing disputes through clear documentation and streamlined processes.

Conclusion

Dynamic equity splits, guided by role-specific time tracking, offer a fair way to allocate ownership. As Mike Moyer puts it:

"Using a dynamic-split model, entrepreneurs are able to determine exactly how much equity each person in the startup deserves with a level of precision not possible in a fixed-split model" .

To make this work, three key factors are crucial: clear metrics that account for contributions minus cash compensation , reliable real-time tracking tools like SliceFair, and periodic reviews to adjust for changes . These principles tie back to the detailed time tracking and role valuation methods discussed earlier.

This model is especially effective for early-stage startups, where ownership is aligned with actual contributions. It not only keeps the cap table simple and attractive to investors but also promotes team motivation by ensuring ownership is distributed transparently and based on merit .