By: Mohamed Ali
(Business Consultant, CEO of Inside Business Consulting)
Eduardo Saverin wasn’t just a co-founder of a small social experiment at Harvard. He was the first to believe in the idea enough to put in his own money, manage the legal groundwork, and shape the company’s early financial structure—only to find himself pushed out just as Facebook was about to become one of the most iconic tech empires in history. His story isn’t just about betrayal or missed documentation. It’s a cautionary tale about what happens when your role, rights, and future exit aren’t clearly defined from the start.
The fallout didn’t happen overnight. Tensions began when Saverin—focused on monetization and early ads—stayed in New York to chase funding, while Zuckerberg moved to Silicon Valley and aligned the company with a different pace and vision. That distance—strategic and geographical—only grew, until Saverin’s shares were diluted from around 34% to less than 0.5% through a series of legal and structural maneuvers. No formal vesting agreement. No clear exit terms. Just assumptions—until it was too late.
Most founders don’t imagine these scenarios in the beginning. They’re focused on the product, the pitch, the next milestone. But long before the big funding rounds or market expansion, there’s a quiet question that almost no one asks out loud:
“What happens if we don’t finish this journey together?”
Disputes over equity. Misaligned expectations. One founder putting in 80 hours a week, the other juggling side gigs. And when things go wrong—or wildly right—it’s not just about who did what. It’s about who owns what, and how that was (or wasn’t) agreed on from day one.
This isn’t a legal article. It’s a survival one.
Because if you’re building something with someone else, and there’s no clear framework for ownership, contribution, and exit…
You’re not building a startup.
You’re starting a countdown.
Why “Handshake Equity” Breaks Down Fast
Many startups begin with a verbal agreement. “We’re in this 50/50.” Or worse, “We’ll figure out the split later.” This is what’s often called “handshake equity”—and it’s one of the top reasons co-founder relationships fall apart. When time, energy, and money start flowing in different directions—and one founder starts to pull more weight than the other—resentment builds. And without a predefined mechanism to adjust equity fairly or plan for a separation, things collapse under the pressure of success or failure.
Clear Models vs Supportive Tools: Know the Difference
Before diving into the available solutions, it’s important to distinguish between equity distribution models and governance tools:
- Equity Distribution Models define how ownership is calculated. Example: Slicing Pie.
- Governance Tools define how ownership evolves or is controlled over time. Examples: Vesting schedules, Buy-back clauses, SAFE notes.
Treating tools like vesting or SAFE as standalone models can be misleading. They support your equity strategy—but don’t replace the need for a foundational distribution logic.
A Fairer Model: Dynamic Equity Tracking (The Slicing Pie Approach)
The Slicing Pie model, developed by Mike Moyer, addresses a fundamental flaw: splitting equity too early, based on guesses. Instead of fixing ownership at the beginning, it dynamically tracks every co-founder’s contributions—cash, time, IP, equipment—and continuously adjusts ownership shares to reflect input in real-time.
Reference: Moyer, Mike. “Slicing Pie: Fund Your Company Without Funds.” 2012.
Here’s a simplified example:
| Contribution Type | Founder A | Founder B | Multiplier (Slice Value) | Total Slices |
| Time (hours) | 600 hrs | 300 hrs | 2 | 1200 + 600 |
| Cash | $5,000 | $0 | 4 | 20,000 + 0 |
| Equipment/IP | $1,000 worth | $1,000 worth | 1 | 1000 + 1000 |
| Total Slices | 22,800 |
Ownership result:
- Founder A = 22,200 / 23,800 ≈ 93.3%
- Founder B = 1,600 / 23,800 ≈ 6.7%
This model has been used by early-stage startups like Splitwise and MetaLab to maintain fairness in uncertain early phases.
However, it’s important to note:
Most institutional investors prefer clean, static cap tables. So while Slicing Pie is excellent for pre-seed and bootstrapped phases, you’ll likely need to convert it into a fixed equity structure before raising major capital.
Vesting Schedules with Cliffs: Earning Ownership Over Time
Vesting ensures equity is earned, not gifted. The standard structure is a 4-year vesting schedule with a 1-year cliff—meaning a co-founder who leaves in the first 12 months gets nothing.
Example:
If a co-founder has 20% promised equity and leaves after 13 months, only 25% of that (i.e., 5%) is vested. The rest continues vesting monthly over the next three years.
Some companies (like Buffer and Stripe) go beyond this with performance-based vesting, where equity is tied to key deliverables—especially in technical or revenue-generating roles.
Buy-Back Clauses: Protecting the Cap Table
A buy-back clause allows the company or founders to repurchase equity from a departing member. This ensures that inactive co-founders don’t retain long-term control or profit rights.
There are several variations:
- Buy at fair market value
- Buy at discounted rates if departure is voluntary
- Mandatory buy-back if leaving before a certain milestone
Companies like Basecamp and Notion have implemented early-stage buy-backs to clean up ownership before raising funds. But these clauses must be legally precise from the beginning—retroactive negotiation rarely works.
SAFE Notes: For Capital Clarity Between Founders
While SAFE Notes (Simple Agreement for Future Equity) are designed for investors, they’re also useful between co-founders when one brings capital and the other brings time or IP.
A simple clause might read:
“If the company exits before a priced round, the SAFE converts to 5% equity or returns 2x the capital.”
This clarity prevents future disputes around repayment or conversion in early exits.
But remember: SAFE Notes only address the capital side. They’re not a full equity distribution model and must be embedded in a broader ownership framework.
The Real Exit Plan? Start With the End in Mind
You don’t need a crystal ball. But you do need a framework.
Whether you adopt a dynamic model like Slicing Pie, apply vesting schedules, build in buy-back clauses, or set capital terms through SAFE Notes—what matters most is early, honest alignment.
Aligned on the vision.
Aligned on the effort.
Aligned on what happens if one of you steps away.
Because in the long run, equity isn’t just about money.
It’s about trust, time, and shared ownership of the journey.
