Worker- and founder-owned ventures

February 16, 2015 — January 8, 2024

economics
ethics
incentive mechanisms
institutions
markets
money
Figure 1

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 is considered a radical new idea. The radical innovations are, AFAICT, 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 assess the size of their proportion of the final valuation. 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 online 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 of 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.

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.

2 Background

3 Sharing economy, application to

4 Incoming

5 References

Abramitzky. 2018. The Mystery of the Kibbutz: Egalitarian Principles in a Capitalist World. The Princeton Economic History of the Western World.
Freeman, Blasi, and Kruse. 2010. Introduction to ‘Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options’.” NBER.
Gilman, and Feygin. 2020. “The Mutualist Economy: A New Deal for Ownership.”
Gonza, and Ellerman. 2019. Worker Ownership and the Current Crisis.” In Sukobi.stabilnost.demokratija?
Kruse. 2002. Research Evidence on Prevalence and Effects of Employee Ownership.” Journal of Employee Ownership Law and Finance.
Logue, and Yates. 2005. Productivity in Cooperatives And Work-Owned Enterprises: Ownership and Participation Make a Difference.”
Morck, and Yeung. 2010. Agency Problems and the Fate of Capitalism.” Working Paper 16490.
Moyer, and Wasserman. 2016. The Slicing Pie Handbook: Perfectly Fair Equity Splits for Bootstrapped Startups.