Fair Market Value in Slicing Pie Explained

February 3, 2025

Fair Market Value (FMV) is the cornerstone of the Slicing Pie framework, ensuring startup equity is divided fairly based on real contributions. Here’s what you need to know:

What is FMV? It’s the market price of an asset or service, used to value contributions like time, money, and assets.
How Slicing Pie Uses FMV: Contributions are converted into "slices" of equity based on FMV and adjusted with risk multipliers.
Examples:
- $10,000 cash = 10,000 slices (1x multiplier).
- 100 hours of work at $50/hour = 7,500 slices (1.5x multiplier).
- Intellectual property = Market value × 2x multiplier.

Quick Comparison of FMV Tools

Feature	Spreadsheets	Specialized Software (e.g., SliceFair)
Real-time Updates	Manual	Automatic
Error Prevention	Prone to mistakes	Built-in validation
Multi-user Access	Limited sharing	Role-based permissions

Using tools like SliceFair simplifies tracking contributions, applying multipliers, and adjusting equity transparently. Start documenting contributions, assign FMV values, and use reliable tools to maintain clarity as your startup grows.

Key FMV Concepts in Slicing Pie

Time vs. Cash Contributions

In the Slicing Pie model, cash contributions are valued at face value, while time contributions are calculated based on market rates and expertise. Here's a quick breakdown of how different contributions are assessed:

Contribution Type	How It's Valued	Risk Multiplier	Example
Cash	Actual dollar amount	1x	$10,000 investment = 10,000 slices
Time	Hourly market rate	1.5x	100 hours at $50/hour = 7,500 slices
Assets	Market value	1x-2x	Depends on the asset type and use

Modified Fair Market Value

Modified Fair Market Value (MFMV) adjusts traditional FMV principles to fit the realities of startups. Unlike standard valuations, MFMV accounts for factors like market rates, contribution risk, strategic importance, and timing. Risk multipliers are then applied to fine-tune the value of contributions based on the level of risk involved.

Risk Multipliers

Risk multipliers are used to adjust the value of contributions, ensuring they reflect the associated risks.

Risk Level	Multiplier
Cash (investments, expenses)	1x
Time (work hours, expertise)	1.5x
Facilities (office space, equipment)	0.5x
IP/Patents (existing intellectual property)	2x

For instance, a $10,000 cash contribution is worth 10,000 slices using a 1x multiplier. Meanwhile, 100 hours of programming at $50/hour earns 7,500 slices with a 1.5x multiplier.

Tools like SliceFair simplify this process by automating calculations and tracking contributions in real time. This system not only ensures fairness but also helps avoid disputes over equity by keeping everything transparent. The Slicing Pie model uses these multipliers to create equity splits that truly reflect what each person brings to the table.

Calculating FMV for Different Contributions

Setting Time Values

To set time values accurately, start by researching market salaries and factoring in experience and location. Platforms like Glassdoor or PayScale can provide helpful benchmarks. Once you have a base rate, apply the risk multiplier discussed earlier.

For instance, a senior software developer in Silicon Valley might earn $150/hour, while a junior developer could be valued at $75/hour. If a CTO works 100 hours at $100/hour, their contribution would be calculated as: 100 hours × $100 × 1.5 = 15,000 slices.

After determining time-based contributions, move on to assessing cash inputs, which follow simpler rules.

Measuring Cash Input

Cash contributions must be recorded with precision. These include direct investments, expenses, deferred salaries, and equipment purchases. Cash inputs are valued at face value with a 1x multiplier. Keep documentation, such as receipts or agreements, to support these valuations.

Pricing Non-Cash Items

Non-cash contributions, like intellectual property (IP) or physical assets, are crucial for startups and need careful valuation to ensure fairness. For IP, consider factors like development costs, market potential, and strategic value, using appropriate multipliers (e.g., 2x for patents).

For physical assets, base the valuation on current market resale value rather than the original purchase price. For example, if a founder contributes office equipment, use its current resale value.

Tools like SliceFair can simplify these calculations and make contribution tracking more transparent. This helps all team members understand how their contributions are assessed and converted into equity slices, ensuring a fair and balanced equity distribution.

Slicing Pie: The world's only fair startup equity calculator

Solving Common FMV Problems

Tackling these issues is key to keeping the Slicing Pie model fair and functional as your startup grows.

Dealing with Bias

Bias in FMV (Fair Market Value) calculations can disrupt fairness and lead to team disagreements. To counter this, use objective market data and standardized tools. A collaborative valuation process involving multiple team members, paired with tools like SliceFair, ensures consistent formulas and multipliers are applied to everyone’s contributions.

Once bias is reduced, staying fair means regularly updating FMV calculations to reflect changing market conditions.

Handling Market Changes

Market rates don’t stay the same, especially in fast-paced industries like tech. To keep up, review skill-based market rates every month, assess asset values quarterly, and update FMV calculations annually. Use sources like job postings, salary surveys, and market comparison data to ensure accuracy.

But staying accurate isn’t enough - building trust within the team around FMV decisions is just as important.

Building Team Trust

Schedule regular meetings to review FMV valuations, document decisions, and address concerns openly. When disagreements come up, rely on objective data rather than personal opinions. For complex valuations, like intellectual property or strategic partnerships, consider bringing in external experts.

Transparency tools can also help. Platforms like SliceFair let team members track their contributions and see how equity splits evolve over time. This level of visibility promotes trust and creates a culture of openness.

FMV Tracking Tools

Keeping track of Fair Market Value (FMV) contributions can get tricky as startups grow. Relying on manual methods often leads to mistakes and inefficiencies, especially when scaling up.

SliceFair FMV Tracking

SliceFair simplifies FMV tracking by automating the process. It provides real-time equity adjustments and keeps contribution tracking clear and organized for everyone on the team. Despite its efficiency, some startups still opt for traditional spreadsheets. Here's a quick comparison of the two methods.

Spreadsheets vs. Software

Spreadsheets might seem like a budget-friendly option at first, but they often fall short as your startup expands. Specialized software offers features that spreadsheets can't match:

Feature	Spreadsheets	Specialized Software
Real-time Updates	Requires manual calculations	Automatic adjustments
Error Prevention	Prone to formula mistakes	Built-in validation tools
Multi-user Access	Limited sharing capabilities	Role-based permissions

Specialized software makes it easier to handle tasks like tracking contributions, applying risk multipliers, and managing records - especially as your team grows.

Learning Materials

To get the most out of FMV tracking tools, founders can tap into resources like The Slicing Pie Handbook, online workshops, and community forums. These materials complement tracking platforms and offer guidance on effective implementation.

The right tools not only simplify FMV calculations but also build trust within your team by ensuring accuracy and clarity. As your startup evolves, make sure your tracking system can keep up.

Conclusion

FMV Basics Review

Fair Market Value (FMV) is key to tracking contributions fairly within the Slicing Pie framework. It translates contributions like time, money, and assets into equity slices, determining how ownership is divided among founders. Once you grasp FMV, the next step is finding the right tools to handle and monitor these contributions.

Choosing the Right Tools

As your team grows, selecting the right tools becomes crucial. Early-stage startups might find spreadsheets sufficient, but expanding teams often need software with advanced features like automated calculations and live updates. Here’s how different factors influence your choice:

Factor	Why It Matters
Team Size	Bigger teams require tools with strong permission controls.
Contribution Types	More varied contributions call for tools that can handle complexity.
Growth Stage	Companies scaling up benefit from automation to keep things efficient.

Getting Started

To begin tracking FMV, follow these steps: document all contributions, assign FMV rates, and pick a tracking method that works for your setup.

For startups on the rise, platforms like SliceFair can simplify this process. They offer automated equity calculations and real-time updates while charging a one-time fee, making it easier to maintain accurate and conflict-free equity splits as your business develops.

It’s also smart to revisit contribution values regularly. This ensures fairness and avoids disputes as your company evolves ^[1]^[2]. By staying on top of FMV tracking, your team can maintain trust and ensure equity is distributed fairly as you grow.