Worker- and founder-owned ventures
February 16, 2015 — January 8, 2024
How to trade off ownership, salary, sweat-equity, and cash investment optimally (or fairly) in new ventures.
1 Dynamic equity split models
I naively imagined that when founding a firm, a common model might be that your share of the ownership of the total equity was proportional to the value of your contribution; It took me some googling to discover that this concept is called “dynamic equity split” and in fact is considered a radical new ideal. The radical innovations are, AFAICT, the evaluating how much money and time was actually invested by all the parties when dividing up the thing. I am utterly baffled that this should be considered in any way innovative, but here we are.
1.1 As “slicing pie”
Some consultants have made bank promulgating some approximation to the idea under the banner of “slicing pie” (Moyer and Wasserman 2016). The basic trick is you assess everyone’s relative contribution to the thing relative to market valuation of their contribution at the time they make it, add it all up, and use the relative values of these contributions at the end to asses the size of their proportion of the final valuation is. So people are paid for both equity and sweat equity at market rates, in terms of the stake they acquire in the risk asset.
I have not paid subscription fees for that service so I do not know the details of the models, but the worked examples I found on line seem weak on time discounting or risk premiums, which seem to me to be real things. Given that, plus the fact that fairness is hard in several senses, I think that the claim fo Slicing Pie to be “perfectly” fair is likely to be oversold. Call me back when everyone knows their Shapley valuation.
“Better than the screaming nightmare void absent common sense that came before” might be fair, however.
- Slicing Pie “The World’s Only Fair [sic] Startup Equity Calculator”
- Dynamic Equity Split or How Everyone is a Co-Founder | by Alex Zhebryakov
- How to Use a Dynamic Equity Split Program So Everyone Gets What They Deserve
- Learn the Slicing Pie Model
1.2 For simple debt, this is easy
We don’t need a name-brand consultancy to work this out for ourselves in simple cases.
Say several parties take out a loan together, and wish to pay down the loan at whatever rate is convenient for them. Their payments have different rates at different stages in the life of the loan. How do we calculate the equity share of each participant?
Relevant to cohousing.
- Dynamic Ownership - Generation Home — a real estate lender that offers integrated dynamic equity split as a service.
2 Background
The Mystery of the Kibbutz. Abramitzky (2018) is summarized in Grok in Fullness, based on an econtalk. Interesting ideas about what works and doesn’t work in private socialist communes like kibbutzim. (FWIW it sounds like the kibbutzim are remarkably effective given how dated their mechanism design is.)
Also GrokInFullness: Why Worker Ownership of the Firm Is (Usually) a Bad Idea, which makes some good arguments about (certain kinds of) worker ownership being bad.
CommunityWealth.org has a particular agenda (pro-worker-autonomy). Various fun reading lists there, for example, on co-operatives. They run layperson’s blog about such things.
Interesting illustration of the way things differ depending on who owns whom; the wobblies write about worker exploitation at consumer-owned cooperatives.
4 Incoming
- The Grocery Store Where Produce Meets Politics
- What Co-ops and DAOs Can Learn From Each Other
- Decentralized autonomous organization
- Using Time Value Of Money For Real Estate Valuation
- How S Group became Finland’s most dominant retailer: The Cooperative That Could