Start Your Dream Business During a Downturn

Slicing Pie and Dynamic Equity: The Best Way to Start Your Dream Business During a Downturn

Many potential clients and current clients have been asking us whether they should pursue their dreams and start their new business despite challenging economic conditions or put their plans on hold. While we understand that it is exceedingly difficult to raise capital and the cost of capital is increasing, we advise everyone to follow their dreams. In fact, in our opinion, challenging economic conditions are the perfect time to start a new business (I have done it) if you are using the right equity allocation model.

What is the right model?

If you are on a limited budget, plan to bootstrap your venture, and are seeking a fair method of sharing equity with your cofounders, dynamic equity is the answer. Mike Moyer, the author of The Slicing Pie Handbook and Will Work For Pie, lays the foundation for perfectly fair equity splits for bootstrapped startups. We have developed a legal framework for limited liability companies that will allow you to start your business with minimal cash investment and fairly and proportionately distribute equity.

How does the model work?

Slicing Pie or dynamic equity provides for both an equity allocation framework as well as a recovery framework. We contractually set initial specific goals for the venture at the outset. Upon founding of the business all uncompensated time, cash contributions, etc. (we call these “Inputs”) that go into the venture are tracked. When the initial specific goals are accomplished we “bake the pie” and enter into a new agreement under which each member’s ownership stake is based on their Inputs as compared to the Inputs provided by everyone.

For example, if Alex and I start a business today and our initial specific goal is to achieve $10k in monthly revenue. Upon reaching said goal, we look at our relative contributions to the venture and determine what percentage of the venture each of us should own at that time.

In other words, instead of the founders of a venture attempting to predict the future (wouldn’t that be nice!), Slicing Pie or dynamic equity provides for a quantitative algorithmic method of equity distribution. This model also provides for a recovery framework in the instance that one of the founders of the venture decides to quit for good reason or no reason at all or is terminated for cause.

Conclusion

There is no time like the present! Slicing Pie and dynamic equity will allow you to follow your dreams and start a new business with a limited amount of cash capital. Click here to schedule a free consultation with us today to discuss how we can help you make the most of challenging times.

 

 
 

How important is it that the governing law be of Country X, as opposed to Country Y?

Choosing which laws govern a contract and where contract disputes, should they arise, will be handled is an important part of contract negotiations. The choice of law and/or forum can present significant advantages to one or both parties. They can also create significant disadvantages, especially when parties and legal systems from different countries are involved. The post below is based on a recent question we answered for a client regarding these exact issues.

For context, the client was based in Country X, and they were negotiating an agreement with a party based in Country Y. The other party required that the laws of their (the other party’s) country, Country Y, will be the laws that govern the contract. As a result, our client wanted to understand what this meant from a legal perspective and how to best proceed. Our client’s question and our answer explaining the issue are below.

While it is not something that would be considered “make or break”, having Country X law as the governing law would be advantageous to you. As a person and a business that are domiciled in Country X, Country X clearly has a much stronger interest in protecting you and your business if something were to happen. Conversely, Country Y law would present the same advantage to the other party since that is where they are based. Another advantage that using Country X’s law creates for you is that you (and any Country X-based legal counsel) are much more familiar with Country X’s laws and how the legal system works in Country X. Thus, if there are ever any issues or you have any future questions, it will be much easier for your legal counsel to research the issue(s), provide you with advice, and, if necessary, represent you in court. While it is not impossible for Country X-based lawyers to research and understand Country Y law, it will likely take significantly more time and work (will need to find out where to look, possibly need to translate from Language Y to Language X, need to familiarize themselves with the court system and legal precedents, likely required to work with local counsel from Country Y if litigation is involved, etc.), which means higher legal fees.

Another aspect to consider when evaluating your choice of law is whether or not you would be able to recover any damages if something were to happen. If you were to choose Country X law, it would likely be very difficult to recover any damages in a Country Y court. The issue here is whether or not a court in Country Y would be able and/or willing to recognize the laws of a foreign country. If they are unwilling and/or unable to recognize Country X law in Country Y, which is definitely a possibility, then you would not have any way to enforce your contract against the other party. If that were the case, you could try to bring suit against them in Country X, but that is also likely to be unsuccessful because it would require them to voluntarily submit to Country X’s jurisdiction. If they refuse to submit to Country X’s jurisdiction, then there isn’t much, if anything (depends on the situation), that could be done.

While Country X law would generally be more advantageous to you, in this situation, Country Y law may be a better bet. If the contract is governed by Country Y law, then you know that the courts in Country Y will be willing and able to adjudicate an issue (as long all of the requirements for litigation are satisfied) if something were to happen. Also, since it is highly unlikely that a foreign entity who is generally not subject to Country X’s laws would submit to Country X’s jurisdiction, using Country Y law could provide a potential pathway for recovering damages through Country Y’s legal system if something were to happen.

In sum, although it is common practice for parties to choose the type of law that governs a contract, international agreements are unique because they usually involve completely separate systems of law. Choosing the law of your home jurisdiction will usually be more beneficial to you because your home jurisdiction (whether it is your country and/or state) will have a greater incentive to protect you and your interests than those of a party from another country or state. However, especially when entering into international agreements, you should consider the potential willingness and ability of a foreign jurisdiction to enforce the law selected in a choice of law provision. This is where local counsel or an attorney with expertise in that particular jurisdiction can really help clarify and explain the nuances of the local legal system in question. Here, although not ideal, we think using Country Y law would be your best option. If something were to happen it would give you a better chance at successfully bringing an action, not necessarily winning (that is dependent on the situation and circumstances), in court than Country X law. Additionally, as we mentioned above, the other party would have to be willing to submit to jurisdiction in a Country X court if Country Y doesn’t recognize Country X law, which we would not expect them to do.