Fairly Exact Framework
Version: v0
Status: pre-alpha
Last Updated: 2025-09-15
Description: Pre-alpha proposal. Not yet implemented in any company. Ready for review by founders, contributors, and legal teams. A practical framework using three block types to capture all value creation: Contribution (Build, Sell, Manage, Maintain), Funding (Cash, Assets, Deferred), and Advisor (external value-adds).
Philosophy
The Fairly Exact Philosophy
The Conviction
Fairly Exact begins with a conviction: opportunity should be fair, and ownership should reflect how we build together.
The Problem with Traditional Equity
Equity is one of the most powerful forces in startups. It decides who shares in the rewards of creation, who has a voice in shaping the future, and how wealth circulates when companies succeed. Yet equity is often split too early, based on guesses, negotiation leverage, or access.
The outcome is familiar:
- Some walk away with more than their share for showing up first
- Others who helped carry the company forward remain under-recognized
- Mismatches weaken community, strain relationships, and distort shared purpose
This doesn’t just create inefficiency — it erodes the trust and collaboration companies depend on.
Real Examples, Real Problems
Consider these common scenarios:
The Essential Marketer
The first marketer arrives months after founding but unlocks the company’s growth trajectory. Despite being essential to success, they hold far less ownership than someone who simply had the privilege or luck of being early.
The Later-Stage Engineer
An engineer who couldn’t take the earliest risk but later becomes essential to the product’s success. Their crucial contributions are undervalued because the equity was already divided.
The Maintaining Force
The operations lead who keeps everything running smoothly, enabling others to build and sell. Their work is often invisible in equity discussions, despite being fundamental to success.
A Different Vision: Ownership as a Shared Story
Fairly Exact is built on a different vision: ownership as a shared story.
Instead of freezing ownership at the outset, it evolves with the company itself:
- Equity ties to the unfolding work of the team
- Ownership adapts as contributions accumulate, overlap, and interlock
- The system acknowledges individuals while reinforcing collective effort
- Equity becomes a reflection of how a group of people has chosen to build together
Practical and Principled
By aligning ownership with the actual journey of building, Fairly Exact helps create companies that are both:
Practical
- Keeps incentives clear
- Maintains clean cap tables
- Provides predictable dilution
- Uses simple defaults for 90% of cases
Principled
- Fosters trust through transparency
- Strengthens community through recognition
- Ensures value mirrors reality
- Extends opportunity outward
More Than a Framework
At its best, Fairly Exact becomes more than a framework. It becomes a way of saying what kind of companies we want to build:
Companies where ownership is not determined by:
- Access or privilege
- Negotiation leverage
- Being there first
- Guesswork about future value
But rather by:
- Shared purpose
- Actual contributions
- Collective effort
- The real work of turning ideas into reality
The Core Values in Action
Fairly Exact embodies six core values that guide every aspect of the framework:
- Justice: Systems that extend opportunity outward, not consolidate it inward
- Generosity: Giving beyond what’s required, creating space for impact
- Trust: Transparent and reliable agreements based on clarity
- Courage: Pursuing what’s right even when it challenges norms
- Curiosity: Asking questions that stretch beyond comfort
- Collaboration: Creating together with shared voices and collective effort
Getting Started
Fairly Exact provides the structure, but success depends on:
- Choosing partners you trust
- Communicating constantly and transparently
- Documenting everything for clarity
- Using judgment when reality demands it
- Building together, not just alongside each other
The framework gives you tools to build companies where ownership truly reflects how we build together — practical in execution, principled in purpose.
Key Principle: Opportunity should be fair, and ownership should reflect how we build together. Strong defaults handle 90% of cases. When reality demands it, use judgment for the remaining 10%.
Overview
Fairly Exact Framework
Close enough to be trusted. Fair enough to be accepted.
Equity will never be perfect, but it doesn't have to be a guessing game. Fairly Exact uses clear formulas to mint blocks as contributions and funding happen. Strong defaults work for 90% of cases: triangular block sizes (1/3/6/10/15/21 units), automatic stage multipliers (5×→4×→3×→2×→1×), and proven patterns. When reality gets messy, you adjust together — always documenting why. This creates a system that's both practical and principled, telling the true story of who built the company. The result is ownership that reflects real value, feels fair to everyone, and ensures that the value of a company mirrors the reality of the team that brought it to life.
Core Principles
Build on Trust, Maintain with Transparency
Build on Trust
Summary: Great systems can't fix broken trust. Choose partners wisely, communicate constantly, and let fairness follow.
The Philosophy
Fairly Exact provides structure for fairness, but it can’t create trust where none exists. The system works when good people communicate openly and document clearly. Choose your co-founders like your life depends on it — because your company’s life does. No equity system can fix broken trust or poor communication.
👉 Great systems can’t fix broken trust. Choose partners wisely, communicate constantly, and let fairness follow.
Trust as Prerequisite
- Choose Wisely: Don’t use any system to work with people you don’t trust. Find trustworthy partners first.
- Pressure Reveals Character: When runway shortens, pivots are needed, or hard decisions arise — trust is what holds things together.
- Good Faith Required: The system assumes everyone acts in good faith. It can’t protect against bad actors.
- Trust Your Gut: If you don’t trust someone when things are good, that won’t improve when things get hard.
Communication as Practice
- Regular Check-ins: Before and after Blocks aren’t just validation — they’re alignment opportunities.
- Document Everything: Not from suspicion, but for clarity. Future-you will thank present-you.
- Hard Conversations: The system provides structure for difficult discussions, but you still need to have them.
- Disagreements Are Healthy: When there’s trust and clear communication, conflict leads to better decisions.
- Over-communicate Early: Better to align expectations upfront than to untangle misunderstandings later.
Trust and Transparency Work Together
Trust gets you started; transparency keeps you together.
- Documentation Preserves Trust: Clear records prevent fuzzy memories from eroding relationships.
- Transparency Removes Ambiguity: When everything is explicit, trust doesn’t have to fill in the gaps.
- Measurement Protects Relationships: We track carefully so trust doesn’t have to carry the whole load.
- Precision Prevents Resentment: Clear contributions mean no one wonders if things are fair.
When money runs low, strategies shift, or performance varies — even trusting partners can remember things differently. The system provides clarity so trust doesn’t get eroded by misunderstandings.
Why Confirmations Exist
Confirmation points in Fairly Exact aren’t about catching cheaters — they’re about maintaining alignment:
- Before Blocks: “Here’s what we’re each committing to do”
- After Blocks: “Here’s what actually happened”
- During Transitions: “Here’s how we’re handling this change”
These aren’t tests of honesty; they’re opportunities to ensure everyone sees the same picture. Misalignment caught early is easily fixed. Misalignment discovered late destroys companies.
In One Line
Trust and Communication = Choose partners you trust, communicate relentlessly, document everything, and let transparency preserve the trust that got you started.
- Choose partners you trust completely — the system can't fix broken trust
- Communicate constantly and document everything for clarity, not surveillance
- Trust gets you started; transparency keeps you together
- Regular check-ins are alignment opportunities, not tests
- When pressure mounts, trust and communication are what hold things together
Simplicity is Sacred
Simplicity is Sacred
Summary: If it isn't simple, it won't be sustainable. And fairness dies in complexity.
The Philosophy
Early-stage founders already carry a huge burden. Equity tracking should not add to that fatigue. Fairly Exact is designed with simplicity as a first principle: defaults, templates, and clear language keep the system usable and sustainable.
👉 If it isn’t simple, it won’t be sustainable. And fairness dies in complexity.
Default Rules
- Defaults First: Most scenarios are handled with clear defaults — Block sizes, Weighting Factors, exit rules, phantom by default.
- Templates and Guides: Standard templates for Block definitions, role assignments, and governance notes prevent reinvention and reduce errors.
- Clear Language: No jargon, no accounting gymnastics. Contributors, founders, and investors can all understand how the system works.
- Decision Light: Teams only make the decisions that matter (like splits and role clarity). Everything else runs on rails.
Why It Matters
- Founder-Friendly: Keeps equity management from becoming another full-time job.
- Contributor-Friendly: Lowers barriers to entry so anyone can understand their stake.
- Sustainable: Complexity kills adoption; simplicity ensures the system survives real-world use.
- Fairness Through Clarity: When everyone understands the rules, trust builds naturally.
Example
A founding team mints an Alpha Block. They don’t debate formats or invent processes. They pick from catalog sizes, apply a default Weighting Factor, use a template to document roles, and freeze the Block with a pre-built governance note. No complexity — just clarity and action.
In One Line
Simplicity is Sacred = defaults, templates, and clear language make equity tracking sustainable and fair.
- Early-stage founders already carry a huge burden — tracking equity shouldn't add fatigue
- Most scenarios handled with clear defaults: Standard Block catalog sizes, Default weighting factors, Automatic exit rules
- Templates for Block definitions, role assignments, and governance notes
- Teams only make the decisions that matter; the rest runs on rails
Alignment Over Optimization
Alignment Over Optimization
Summary: Team alignment matters more than mathematical perfection.
The Philosophy
It’s tempting to design equity systems that chase perfect optimization — every edge case accounted for, every ratio tweaked. But the pursuit of perfect math often destroys trust and usability. Fairly Exact prioritizes alignment you can feel over optimization you can’t manage.
👉 A system that creates alignment beats one that looks perfect on paper.
Default Rules
- Bounded Simplicity: Block catalog sizes, Weighting Factors, and phantom rules are capped and clear. No over-optimization.
- Trust the Defaults: Defaults handle most situations. Only real outliers require custom handling.
- Aligned Enough > Perfect: Equity is for humans, not spreadsheets. If contributors feel aligned with the process, that’s the success metric.
- Avoid Edge-Case Engineering: Rare scenarios are solved with judgment, not layers of complexity.
Why It Matters
- Protects Culture: Endless optimization creates debates that fracture teams. Alignment builds cohesion.
- Reduces Fatigue: Founders don’t need to chase every decimal — they just need a fair, trusted process.
- Saves Time: Less time spent tweaking equity rules means more time building the business.
- Scales Better: Simple alignment holds up under growth; complex optimization usually collapses.
Example
A Block closes and one contributor argues that their role delivered 12% more measurable output than expected. Instead of recalculating every split, the team sticks to the agreed allocation, trusting the process. They all know optimization might shift the math slightly, but the alignment created by the default system outweighs the stress of constant adjustment.
In One Line
Alignment Over Optimization = prioritize a system that creates team alignment over one that chases perfect math.
- Prioritize systems that create team alignment over mathematically perfect optimization
- Block catalogs and weighting factors are intentionally capped and clear
- Most situations handled by defaults; only outliers get custom treatment
- "Aligned enough > Perfect" — equity serves humans, not spreadsheets
- Rare scenarios solved with judgment, not additional complexity layers
Clear Commitments
Clear Commitments
Summary: Fairness requires clarity — not just in math, but in commitments.
The Philosophy
Equity isn’t only about what was contributed in the past — it’s also about clarity in how work is divided in the present. Silent assumptions about roles lead to misaligned expectations, resentment, and unfairness. Fairly Exact ties contributions to clear, documented roles and responsibilities.
👉 Fairness requires clarity — not just in math, but in commitments.
Default Rules
- Role Clarity First: Before a Block begins, each contributor’s role and responsibilities are documented.
- Contributions Linked to Roles: Allocations of Block units are tied directly to the responsibilities someone agrees to carry.
- No Silent Assumptions: If it’s not written down, it can’t be assumed. Documentation is light but explicit.
- Adjustment if Roles Shift: If someone’s role expands or shrinks mid-Block, allocations can be revisited at retro to align expectations with reality.
- Board/Leader Oversight: For major Blocks, role assignments and responsibilities are validated by leadership or the board to avoid ambiguity.
Why It Matters
- Prevents Resentment: Contributors know exactly what they’re accountable for and how it ties to their equity.
- Strengthens Trust: Clear commitments reduce the space for misunderstandings.
- Keeps Ledger Honest: Contributions logged against explicit roles make the record of ownership transparent and defensible.
- Supports Growth: As teams expand, explicit roles scale better than informal agreements.
Example
The team is preparing for a Landing Page Block. Sarah is explicitly responsible for design, Tom for copywriting, and Maria for development. Their allocations are tied to those responsibilities. At retro, if Tom only delivers half of the agreed copy, the team can adjust his allocation — not because of hours logged, but because his role expectations were clear and unmet.
In One Line
Roles and Responsibilities Are Explicit = equity allocations are tied to documented commitments, preventing assumptions and ensuring fairness.
- Equity isn't just about past contributions; it's tied to clarity of roles
- Each contributor's responsibilities documented before Block work begins
- Block unit allocations tied directly to agreed responsibilities
- "If it's not written down, it can't be assumed"
- Major Blocks require role assignment validation by board/leadership
Contributions Always Matter
Contributions Always Matter
Summary: No contribution gets erased. Fairness starts with recognition.
The Philosophy
Every contribution — whether building product, selling, funding, guiding, or connecting — creates real value. That value deserves to be minted into the ledger. Even if someone leaves, their contributions don’t vanish; they remain permanently recorded in the company’s history.
👉 No contribution gets erased. Fairness starts with recognition.
What This Means in Practice
- Permanent Record: Once contributions are minted into the ledger, they can never be taken away.
- Enduring Ownership: Contributors who exit keep the share of the ledger they earned. While they may be diluted by future progress, the value of their past work is always preserved.
- Story of the Company: The ledger is not just numbers — it is the history of who helped build the company at each stage.
Why It Matters
- Trust Building: Contributors know their efforts will be honored permanently.
- Cultural Signal: The company demonstrates integrity by recognizing every hand that shaped the journey.
- Alignment: Ensures fairness without arguments about erasure or rewriting history.
Example
Imagine Alice designs the brand identity in the first month of the venture. Months later, she decides to leave. Her contribution remains locked in the ledger, always visible as part of the company’s foundation. She may be diluted as the company grows, but her role in its early story is never erased.
In One Line
Contributions Always Matter = once minted, contributions remain in the ledger forever, part of the company’s history and ownership story.
- Every contribution — time, cash, expertise, relationships, equipment — creates real value
- Once minted into the ledger, contributions can never be taken away
- Even if someone leaves, their contributions remain as a permanent record
- The ledger tells the complete story of who built the company at each stage
Value Over Hours
Value Over Hours
Summary: It's not about how long you worked, it's about what you actually created.
The Philosophy
Time is a poor proxy for value. Hours are easy to tally and hard to compare across roles. Fairly Exact rewards progress delivered inside milestone-driven Blocks, not time spent.
👉 We don’t reward time. We reward milestones.
What This Means in Practice
- Blocks, Not Timesheets: Contributors earn units through Blocks (e.g., Alpha release, Landing Page, First Customer). Each Block uses triangular number sizing: 1 (Micro) / 3 (XS) / 6 (S) / 10 (M) / 15 (L) / 21 (XL).
- Stage Multipliers: Your company stage determines the multiplier:
- Stage 0 (Conception): ×5
- Stage 1 (Early Build): ×4
- Stage 2 (Early Market): ×3
- Stage 3 (Growth): ×2
- Stage 4 (Steady State): ×1
- Transparent Dilution: Each block shows its dilution impact — an M block is ~10%, an XL block is ~21% (capped).
- Upfront Allocations: Before a Block begins, contributors agree on percentage splits. Everyone knows their share ahead of work.
- No Hourly Tracking: Different work types (code, sales, operations) sit side-by-side inside a Block. No logging of hours.
Why It Matters
- Zero Tracking Fatigue: No timesheets, no hourly debates.
- Cross-Role Fairness: Build, Sell, Manage, and Maintain work recognized equally.
- Predictable Dilution: Triangular numbers create clear, memorable dilution steps.
- Stage Recognition: Earlier work gets higher multiples, reflecting higher risk.
- Clarity Upfront: Contributors know their percentage before work starts; ±10-20% adjustments allowed at retro.
Example
- Stage 0 Alpha Block: size L (15 units) at 5× = 75 units minted
- Lead engineer: 60% = 45 units
- Designer: 30% = 22.5 units
- Advisor: 10% = 7.5 units
- Stage 2 Sales Block: size M (10 units) at 3× = 30 units minted
- Sales lead: 70% = 21 units
- Marketing support: 30% = 9 units
The ledger grows by minted Blocks, with transparent dilution at each step.
In One Line
Value Over Hours = reward milestone-driven Blocks (triangular sizes × stage multipliers), not clock time.
- Tracking hours incentivizes the wrong behavior (time spent ≠ value delivered)
- We track Blocks — milestone-driven outcomes with triangular sizes (1/3/6/10/15/21 units)
- Stage multipliers (5×→4×→3×→2×→1×) reflect decreasing risk over time
- Contributors agree on percentage splits upfront before Block work begins
- Each block explicitly shows its dilution impact (~1% to ~21%)
Capture All Contributions
Capture All Contributions
Summary: If you don't name it, you'll undervalue it.
The Philosophy
Equity isn’t just about code or cash. Companies succeed because people build products, sell customers, guide strategy, and maintain operations. Fairly Exact calls these out explicitly so every type of contribution is valued, not just the loudest or most obvious ones. Cash contributions (fund) are handled separately through negotiated blocks.
👉 If you don’t name it, you’ll undervalue it.
Default Rules
Contribution Blocks (follow triangular catalog):
- Build: Code, design, engineering, product creation. The hands-on work that creates the product.
- Sell: Sales, marketing, partnerships, customer acquisition. Revenue and relationships that keep the company alive.
- Manage: Strategy, governance, mentorship, validation. The direction and wisdom that shape the company’s path.
- Maintain: Operations, support, finance, ongoing care. The infrastructure that keeps everything running.
Fund Blocks (negotiated separately):
Fund: Cash or resources that fuel operations, tracked through negotiated Funding Blocks. Not part of the triangular catalog — every funding situation is unique.
Blocks Are Tagged: Each contribution block is tagged to its role type so it’s clear what kind of work was recognized.
Why It Matters
- Prevents Blind Spots: Without explicit categories, companies undervalue maintaining and guiding compared to building.
- Supports Role Clarity: Roles map directly to categories, so contributors know what they’re being recognized for.
- Balances Value: Not every contribution is code or cash. Operations that keep systems running are just as critical as new features.
- Investor-Friendly: Transparent categories make the ledger easy to explain and defend.
Example
The Alpha Block might include: Build (engineering the prototype), Manage (strategic direction), and Maintain (setting up infrastructure). A Customer Acquisition Block is tagged as Sell. A Seed Funding round creates a negotiated Fund block separate from the contribution catalog. Together, the ledger tells the full story of how the company grew.
In One Line
Build, Sell, Manage, Maintain (+ Fund) = the ways companies grow, explicitly recognized so no contribution is overlooked.
- Equity recognizes four contribution types plus funding
- Build: Code, design, engineering, product creation
- Sell: Sales, marketing, partnerships, customer acquisition
- Manage: Strategy, governance, mentorship, validation
- Maintain: Operations, support, finance, ongoing care
- Fund: Cash contributions handled through separate negotiated blocks
- Each contribution block is tagged to its role type
Cash Is Respected
Cash Is Respected
Summary: Cash fuels the company. It deserves respect and fair treatment.
The Philosophy
Cash is the most direct, high-risk contribution a company can receive — especially early on. Unlike sweat contributions, cash keeps the lights on and creates the runway for everything else. Fairly Exact treats cash with clarity and respect: it’s logged separately, protected in downside scenarios, fully redeemed in success, and recognized through negotiated Funding Blocks.
👉 Cash fuels the company. It deserves respect and fair treatment.
Default Rules
- Dual System: Cash ledger tracks dollars for redemption; Funding Blocks provide upside participation.
- Separate Ledger: Cash is tracked in its own clear ledger, not mixed with Build, Sell, or Manage contributions.
- Downside Protection: In exits below 2x cash invested, cash redemption is capped proportionally to protect all contributors.
- Full Redemption at Success: In exits at or above 2x cash invested, cash is redeemed 1:1 before unit distribution.
- Negotiated Funding Blocks: Funding Block size and weighting are negotiated based on context, not formulaic.
- Reimbursements vs Capital: Small operational expenses are reimbursements (repayable loans); large injections are capital.
- Threshold Recognition: When reimbursements exceed threshold (~$5,000), they convert to negotiated Funding Blocks.
- Finite Obligation: Once cash is redeemed, the balance is cleared. No phantom obligations remain.
- Non-Cash Resources: Tangible resources (equipment, furniture, etc.) treated as cash equivalents become company assets.
Why It Matters
- Fair to Funders: Cash contributors know exactly how their money will be recognized and redeemed, with downside protection through the 2x threshold.
- Fair to Builders: In downside scenarios, cash doesn’t consume all proceeds — sweat equity always participates meaningfully.
- Protects the Company: Obligations are clear and finite, with automatic adjustments in difficult exits.
- Investor-Friendly: Clean handling of cash keeps the system transparent and easy to diligence.
- Balanced Risk: Cash investors get priority in success but share the pain proportionally in failure.
Why Cash Is Different
Cash contributions are fundamentally different from labor contributions:
- Already Earned: Cash represents past labor that was already compensated and taxed.
- Opportunity Cost: Could be invested elsewhere for returns with less risk.
- Liquidity Sacrifice: Cash providers lose access to their capital while the company uses it.
- Absolute Value: $1 is $1, unlike labor contributions which are relative to each other.
- Immediate Utility: Cash can immediately pay bills, hire people, and extend runway.
This is why cash gets both downside protection AND negotiated upside participation.
Funding Philosophy: Operational vs. Capital
Not all cash is created equal. Fairly Exact distinguishes between:
- Reimbursements (operational contributions): Small expenses like hosting, domains, coffee
- Capital contributions: Large intentional injections for runway, equipment, hiring
- Threshold recognition: When reimbursements accumulate beyond threshold
Reimbursements (Operational Expenses)
Routine expenses are treated as reimbursable loans, not equity. They keep the lights on but aren’t at-risk capital. The company can pay these back at any time to reduce or eliminate the balance, preventing funding block allocation.
Threshold Recognition
When reimbursements cross the threshold (default ~$5,000, may increase with company maturity), they may be converted into a Funding Block, sized according to stage and negotiation. This prevents nickel-and-dime equity grants while honoring sustained financial support.
Capital Contributions
Larger intentional injections ($10K+ for runway, equipment, hiring) always mint Funding Blocks at the time of investment, sized by negotiation. These cannot be paid back — they’re permanent at-risk capital.
Non-Cash Equivalents
Tangible resources like computer equipment, office furniture, or software licenses can be contributed and tracked as cash equivalents. Important: Once contributed and tracked in the cash ledger or funding block, these assets become company property — no longer personal assets.
Important: Regardless of entry method, ALL cash (including non-cash equivalents) gets the same downside protection below 2x return.
Funding Blocks Are Negotiated
Unlike contribution blocks with triangular sizes (1/3/6/10/15/21), Funding Blocks are negotiated:
- Flexible Size: Can be any amount that both sides agree on (75, 250, 1500, etc.).
- Context-Driven: Emergency funding commands premium; comfortable runway less so.
- Stage-Appropriate: Early cash gets higher stage multipliers; later cash lower.
- Both Sides Must Agree: Cash provider proposes, team accepts or counters.
- Document Everything: Record the negotiation outcome and reasoning.
This honest approach acknowledges that every funding situation is unique. Formulas create false precision where negotiation creates real fairness.
Downside Protection Formula
For exits below 2x total cash invested:
Cash Redemption Cap = (Exit Value ÷ 2× Cash Invested) × Exit Proceeds
This ensures:
- At 0.5x exit: Cash gets 25% of proceeds
- At 1x exit: Cash gets 50% of proceeds
- At 1.5x exit: Cash gets 75% of proceeds
- At 2x+ exit: Cash gets 100% redemption (up to actual cash invested)
Example: Reimbursements in Action
Sarah covers hosting ($50/month) and domains ($100/year) for the first year. Total: $700.
- Tracked as reimbursements (not funding blocks yet)
- Can be paid back if company gets revenue
- Protected in downside like all cash
After 2 years, reimbursements total $5,400. The team has two options:
- Pay back some/all to keep below threshold
- Convert to Funding Block through negotiation
If converted, the team negotiates a Funding Block size that acknowledges her sustained support without over-diluting for operational expenses. The negotiation considers existing unit distribution, stage, and context.
In One Line
Cash Is Respected = distinguish reimbursements from capital, allow repayment of operational expenses, protect all cash in downside, and recognize value through negotiated Funding Blocks.
- Cash is the most direct, high-risk contribution — especially early on
- Tracked in separate ledger with full redemption above 2x return
- Protected proportionally in downside scenarios below 2x return
- Also minted into contribution ledger through negotiated Funding Blocks
- Small operational expenses tracked as reimbursements until threshold
- Early cash receives higher stage multipliers to reflect risk
- Once redeemed, cash obligations are cleared — no phantom debt
Simple, Predictable Exits
Simple, Predictable Exits
Summary: People may leave, but fairness stays consistent.
The Philosophy
Exits are emotionally messy; the system shouldn’t make them financially messy too. Fairly Exact provides one clear default: contributions are locked, converted to phantom equity, and honored consistently, with forfeiture reserved only for true misconduct.
👉 People may leave, but fairness stays consistent.
Default Rules
Permanent Ledger: Once minted, contributions can’t be erased. Units remain in the ledger and convert to phantom equity by default.
Phantom Equity by Default: All exits result in phantom equity. This preserves upside for contributors without burdening the company with cap-table clutter or cash obligations at the worst possible moment.
No Forced Cash Payouts: Departing contributors are not owed immediate cash. Their upside is realized through phantom payouts at liquidity events or profit redemptions.
Exit Types:
- Quit (Voluntary): Contributions convert to phantom equity automatically.
- Terminated (No Cause): Same as quit—phantom equity continues, no penalty.
- Terminated (For Cause): Misconduct—fraud, theft, harassment, sabotage, or willful violation of law/policy—may result in forfeiture. Underperformance is not cause.
Board Oversight: The board confirms cause-based forfeitures. Routine quits and no-cause terminations follow the default path automatically.
Why It Matters
- Fair to Contributors: Past contributions always count, and upside is preserved through phantom equity.
- Protects the Company: No impossible cash obligations or messy buyouts during fragile stages.
- Investor-Friendly: Clean, predictable treatment that keeps the cap table simple.
- Consistent and Clear: Everyone knows the rules before they start—no surprises, no improvisation.
Example
Alice mints 5000 units in the Alpha Block. Six months later, she resigns. Her units convert to phantom equity automatically. The company owes no cash at exit. At the next liquidity event or per the profit-redemption policy, Alice receives her share. Her ownership dilutes naturally over time, but her contribution is permanently recognized.
In One Line
Simple, Predictable Exits = all exits convert to phantom equity by default, no cash owed, misconduct is the only path to forfeiture.
- Exits are emotionally messy; the system shouldn't make them financially messy too
- Three clear exit types: Quit (Voluntary) with automatic phantom equity conversion, Terminated (No Cause) same as quit with no penalty, Terminated (For Cause) only misconduct can result in forfeiture
- Misconduct = fraud, theft, harassment, sabotage, willful law violation
- Underperformance is explicitly NOT cause for forfeiture
- Company never owes immediate cash payouts to departing contributors
Economics Outlast Involvement
Economics Outlast Involvement
Summary: Your contributions always matter economically, even after you leave.
The Philosophy
When contributors exit, their ledger units convert to phantom equity — non-voting units that maintain economic participation. Phantom holders share in all distributions and exits proportionally, but have no voting rights or control. This keeps cap tables clean while honoring contributions forever.
👉 Your contributions always matter economically, even after you leave.
Default Rules
- Automatic Conversion: Exited contributors’ units become phantom units (same number, frozen).
- Economic Participation: Phantom units participate proportionally in all profit distributions, dividends, and liquidity events.
- No Voting Rights: Phantom holders cannot vote, join boards, or influence decisions.
- Clean Cap Table: Only active contributors appear on the official cap table.
- Dilution: Phantom units dilute proportionally as new Blocks mint units.
- No Expiration: Phantom rights continue indefinitely (or until company exit).
Why It Matters
- Fair to Departed: Contributors who helped build value continue to benefit from it.
- Protects Active Team: No voting interference from people no longer involved.
- Investor-Friendly: Cap table shows only active members; phantom is just an economic obligation.
- Simple to Track: Units are units — some vote, some don’t. No complex valuations or buyout formulas.
- No Traps: No waiting for rare liquidity events; phantom participates in any distribution.
Example
Alice contributed early and earned 5,000 units. She exits when the total ledger has 50,000 units (she owns 10%). Her 5,000 units convert to phantom.
Year 1: Company distributes $100,000 in profits. Alice receives $10,000 (10%).
Year 2: New Blocks mint 25,000 units. Alice now owns 5,000/75,000 = 6.67%.
Year 3: Company sells for $10M. Alice receives $667,000 (6.67%).
Throughout, Alice has no voting rights, doesn’t appear on the cap table, but participates economically.
Negotiated Buyouts
While phantom equity continues indefinitely by default, it can be bought out through voluntary negotiation:
- Mutual Agreement: Both the company and phantom holder must agree to terms — neither party is obligated.
- Common Timing: Buyouts typically occur during funding rounds or liquidity events when cash is available.
- Fair Valuation: Terms should reflect the value of the original contribution and potential future upside.
- Clean Exit: Once bought out, phantom units are retired and obligations are cleared.
This provides flexibility for both parties while maintaining the integrity of the contribution system.
In One Line
Phantom Equity = non-voting economic participation that keeps cap tables clean while honoring all contributions forever (with optional negotiated buyouts).
- Exited contributors' units convert to phantom — non-voting participation rights
- Phantom units participate proportionally in all distributions and exits
- No voting rights, board seats, or decision-making power
- Clean cap table with only active members as shareholders
- Phantom dilutes with new Blocks just like active units
- Can be bought out through voluntary negotiation during funding rounds
- Simple: units are units, some vote (active), some don't (phantom)
Keep Cap Tables Clean
Keep Cap Tables Clean
Summary: Fair to contributors, clean for investors.
The Philosophy
Investors hate messy cap tables. Departed contributors holding tiny slivers of real equity make future fundraising or acquisition painful. Fairly Exact avoids this by translating contributions into phantom equity, not permanent stock for those who have left.
👉 Fair to contributors, clean for investors.
Default Rules
- Phantom, Not Stock: Contributions convert into phantom equity when someone exits. No proliferation of micro-shareholders.
- Permanent Recognition: Contributors retain their share of the ledger as phantom, ensuring they still benefit from future upside.
- Simple Cap Table: Active contributors and investors are the only ones on the official ownership record.
- Investor-Friendly Defaults: Phantom is honored through profit redemption and liquidity payouts, while keeping the equity stack streamlined.
Why It Matters
- Protects Fundraising: Clean cap tables speed up deals and reduce investor resistance.
- Fair to Contributors: Their work is still recognized and rewarded, even after they leave.
- Scales with Growth: As more contributors cycle through, the cap table remains manageable.
- Reduces Legal Complexity: Phantom equity avoids the costs and headaches of managing dozens of tiny shareholders.
Example
In a traditional system, five interns might each walk away with fractional stock, cluttering the cap table forever. In Fairly Exact, their contributions are minted, converted to phantom equity when they leave, and later redeemed at profit or exit. The official cap table remains streamlined, investor-ready.
In One Line
Cap Table Cleanliness = contributions honored through phantom, while active ownership stays simple and investor-friendly.
- Investors hate messy cap tables with dozens of micro-shareholders
- Fairly Exact translates contributions into phantom equity, not permanent equity slivers
- Only active contributors and investors appear on the official cap table
- This speeds fundraising and reduces investor resistance
- System remains manageable as contributors cycle through the company
Integrity Through Documentation
Integrity Through Documentation
Summary: Equity is inseparable from the agreements that govern it.
The Philosophy
Equity management doesn’t stand apart from governance. Ownership and decision-making are intertwined. Fairly Exact integrates board notes, resolutions, and agreements directly into the equity record.
👉 Equity is inseparable from the agreements that govern it.
Default Rules
- Governance and Equity Linked: Each Block’s minting is accompanied by documentation of the decisions and agreements that defined it.
- Attach Records at Freeze: When a Block closes and is minted into the ledger, the relevant governance documents (board notes, resolutions, policies) are attached.
- Light but Explicit: Documentation doesn’t need to be heavy — but it must exist and be linked to the ledger for clarity.
- Resolutions Matter: Role changes, exit classifications, and weighting factor approvals are recorded as part of governance, not ad hoc decisions.
- Seamless Transitions: Governance records live alongside the ledger so future contributors, investors, and leaders inherit a clear trail of agreements.
Why It Matters
- Clarity in Decisions: Prevents disputes by linking equity allocations to documented approvals.
- Cultural Integrity: Reinforces fairness and accountability at every level.
- Investor Confidence: Clean governance records, tied to the ledger, make diligence and fundraising smoother.
- Future-Proof: The system scales because every Block carries its own governance record.
Example
The team mints a Large Block for a Seed Funding round. At freeze, the ledger entry also includes the board resolution approving the Block size and Weighting Factor, as well as the updated policy for profit redemptions. Years later, investors can see exactly how and why that Block was minted.
In One Line
Integrated Governance = every Block is tied to governance records, making equity and decision-making inseparable.
- Equity management isn't separate from governance
- Each Block's minting includes documentation of defining decisions
- Board notes, resolutions, and policies attached when Blocks close
- Role changes, exit classifications, and weighting approvals all recorded as governance
- Complete governance trail inherited by future contributors and investors
Implementation Guides
Getting Started
A practical guide to implementing Fairly Exact in your startup
Prerequisites
Before implementing Fairly Exact, ensure these foundations are in place:
Essential Requirements
- Trust: Work only with people you genuinely trust
- Communication: Commit to radical transparency and documentation
- Alignment: All founders agree to the framework principles
- Value Focus: Track contributions by impact, not hours
Warning Signs
- Hesitation about transparency from any founder
- Insistence on hourly tracking over value creation
- Unwillingness to honor departed contributors
- Resistance to documented decision-making
Initial Setup
Foundation Conversations
Before any implementation, have explicit discussions about:
- Trust and commitment to transparency
- Honoring all contributions, including departed members
- Handling disagreements constructively
- Documentation standards and practices
Review Core Materials
- Read the Fairly Exact philosophy together
- Review all principles as a team
- Discuss how they apply to your specific situation
- Document any company-specific interpretations
Establish Communication Rhythms
Regular Cadence
- Daily: Async updates on progress
- Weekly: Sync on active block progress
- Per Block: Planning session and retrospective
- Quarterly: Full equity review with all stakeholders
Set Up Infrastructure
Essential Tools
- Equity Ledger: Spreadsheet or dedicated tracking system
- Documentation: Central repository for all decisions
- Communication: Agreed channel for updates
- Governance: Formal record of board resolutions
Planning Your First Block
Defining the Milestone
Your first block should have:
- Clear deliverable: Working prototype, launched website, first customer
- Realistic timeline: Typically 4-12 weeks
- Measurable outcome: Can be demonstrated or validated
- Documented scope: Written agreement on what constitutes completion
Setting Block Parameters
Recommended for First Block
- Size: 1 unit (starting small) or 3 units (more substantial founding work)
- Stage Multiplier: 5× (pre-product stage)
- Effective Units: 5 or 15 units after multiplier
Initial Allocation
Example: Two Co-founders
Block 1 (1 unit × 5 = 5 units total)
- Technical Founder: 60% = 3 units
- Business Founder: 40% = 2 units
Example: Three Co-founders
Block 1 (3 units × 5 = 15 units total)
- Technical Lead: 50% = 7.5 units
- Business Lead: 35% = 5.25 units
- Design Lead: 15% = 2.25 units
Document all roles, responsibilities, and the rationale for percentages.
Ongoing Implementation
Block Planning Process
Before Each Block
- Define clear milestone and success criteria
- Estimate appropriate block size based on scope
- Determine contributor allocations based on expected roles
- Document all decisions with rationale
- Get explicit agreement from all participants
During the Block
- Track progress against milestones
- Document any scope changes
- Note exceptional contributions
- Maintain regular communication
After Block Completion
- Assess milestone achievement
- Review actual vs planned contributions
- Make any necessary adjustments (with documentation)
- Update the equity ledger
- Communicate results to all stakeholders
Managing Changes
New Contributors
- Onboard with clear expectations
- Explain the framework and their potential allocation
- Document their entry point and initial block participation
Departing Contributors
- Convert active equity to phantom equity
- Document departure terms and vesting status
- Ensure continued recognition of past contributions
Funding Events
- Create separate funding blocks
- Negotiate size based on amount and timing
- Document all terms including liquidation preferences
Best Practices
Documentation Standards
Every Block Should Have
- Milestone definition and success criteria
- Participant list with planned allocations
- Timeline and key deliverables
- Retrospective notes on actual outcomes
- Board resolution approving the block
Common Pitfalls to Avoid
Block Sizing
- Starting too large (use smaller blocks initially)
- Inconsistent sizing relative to achievements
- Forgetting to apply stage multipliers
Allocation Errors
- Basing splits on hours instead of value
- Not adjusting for actual vs planned contribution
- Failing to recognize all contribution types
Process Mistakes
- Skipping documentation “just this once”
- Making verbal agreements without writing
- Delaying difficult conversations
- Not maintaining regular communication
Legal Considerations
Essential Documents
- Founder agreements incorporating Fairly Exact
- Board resolutions for each block
- Equity ledger with full history
- Contributor agreements for non-founders
- Legal opinion on tax implications
Regular Reviews
- Quarterly: Full ledger reconciliation
- Annually: Legal and tax review
- Per funding: Investor documentation
- On exit: Full audit trail preparation
Contribution Blocks Guide
This guide helps teams make the key decisions when running Contribution Blocks (Build, Sell, Manage work): allocations, weightings, role definitions, and adjustments.
Core Principle: Alignment Over Precision
The system works best when teams spend 15 minutes agreeing rather than 2 hours optimizing. Perfect allocations don’t exist - good enough allocations that everyone supports do.
“We’re not tracking time like Slicing Pie - we’re recognizing value creation. People aren’t ‘grunts’ earning hourly equity; they’re contributors building something meaningful together.”
Key Rules:
- Use triangular block sizes (1/3/6/10/15/21) for elegant dilution
- Your stage sets the multiplier (not per-block negotiations)
- Pre-allocate percentages, then only ±10-20% adjustments at retro
- Block size stays fixed once chosen
- Mis-sized work? Use a micro follow-on block
The 5-Minute Allocation Method
When starting a new Block, use this quick framework:
- List the key outcomes needed for this milestone (2 min)
- Match people to outcomes based on roles (1 min)
- Propose rough percentages (1 min)
- Quick gut check - does this feel right? (1 min)
- Document and confirm (done!)
Stage-Based Multipliers
Automatic Risk Adjustment
Your company stage determines the multiplier — no per-block decisions needed:
Stage | Phase | Multiplier | Risk Level |
---|---|---|---|
0 | Conception/Prototype | ×5 | Maximum risk, proving idea |
1 | Early Build (MVP) | ×4 | High risk, building foundation |
2 | Early Market | ×3 | Seeking traction, proving model |
3 | Growth/Operation | ×2 | Scaling up, execution risk |
4 | Steady State | ×1 | Mature, predictable business |
Example Impact
An M block (10 units) at different stages:
- Stage 0: 10 × 5 = 50 units (high-risk founding work)
- Stage 2: 10 × 3 = 30 units (early market validation)
- Stage 4: 10 × 1 = 10 units (mature operations)
This rewards the risk taken during early company stages while recognizing ongoing work.
Important: The multiplier is about the company’s stage, not individual timing. A new engineer joining during Stage 0 gets the same 5× multiplier as the founders. Everyone contributing during a high-risk stage shares that stage’s multiplier.
The Golden Rules
- Use triangular sizes - 1/3/6/10/15/21 create elegant, predictable dilution
- Stage sets multiplier - Not a per-block negotiation
- Pre-allocate percentages - Split blocks by role contribution
- ±10-20% adjustment band - Small retro adjustments only
- Block size stays fixed - Once chosen, don’t change it
- Define roles upfront - Build, Sell, Manage, Maintain
- Spend minutes, not hours - 15-minute allocations beat 2-hour debates
- XL blocks cap at ~21% - No single block dilutes more than one-fifth
- Document decisions - Not endless discussions
Remember: The triangular system is elegant and memorable. Each block transparently shows its dilution impact. Trust the process over multiple blocks.
Funding Blocks Guide
This guide explains how to handle cash contributions through negotiated Funding Blocks. Unlike Contribution Blocks (Build, Sell, Manage), Funding Blocks acknowledge that cash is fundamentally different and requires negotiation, not formulas.
The Dual System
Fairly Exact uses two parallel systems for cash:
- Cash Ledger: Tracks dollars for redemption rights and downside protection
- Funding Blocks: Provides upside participation through negotiated units
Both systems work together to protect cash contributors while keeping the company fair to all stakeholders.
Reimbursements vs Capital Contributions
Understanding the Distinction
Not all cash entering the company is the same. Fairly Exact distinguishes between operational expenses that keep the lights on and intentional capital that fuels growth.
Reimbursements (Operational Expenses)
Small expenses that keep the company operational:
- Examples: Hosting fees, domain names, software subscriptions, coffee for meetings, one-time purchases
- Treatment: Tracked as reimbursable loans, not immediate equity
- Key Feature: Can be paid back by the company to prevent equity allocation
- Threshold: Default ~$5,000 before conversion to Funding Block
- Protection: Still gets full downside protection like all cash
Capital Contributions
Large, intentional injections meant to fuel the company:
- Examples: $10K+ for runway extension, equipment purchase, hiring
- Treatment: Immediately mints negotiated Funding Blocks
- Key Feature: Cannot be paid back — permanent at-risk capital
- Negotiation: Size and terms negotiated at time of contribution
- Protection: Full downside protection below 2x return
The Repayment Mechanism
The ability to repay is what makes reimbursements unique:
Example Timeline:
- Month 1-6: Founder covers $300/month in expenses = $1,800 reimbursements
- Month 7: Company gets first customer, generates $2,000 revenue
- Option A: Pay back the $1,800, clearing the reimbursement ledger
- Option B: Keep the cash for growth, let reimbursements accumulate
This flexibility prevents premature dilution while honoring real contributions.
Threshold Conversion
When reimbursements exceed the threshold (default ~$5,000):
- Team evaluates whether to pay down the balance
- If not paid, negotiate conversion to Funding Block
- Consider stage, context, and total contribution
- Document the negotiation and reasoning
Remember: The $5,000 threshold is a starting point. Teams should adjust based on their context, cash flow, and philosophy about operational expenses.
Why Cash Is Different
Cash contributions deserve special treatment because they represent:
Past Value Already Created
- Already Earned: Someone worked to earn this money previously
- Already Taxed: Post-tax dollars (taxed once, risked again)
- Proven Value: Market already validated this value by paying for it
Real Sacrifices
- Opportunity Cost: Could be earning returns elsewhere (stocks, bonds, real estate)
- Liquidity Loss: Can’t access the capital while company uses it
- Total Risk: Could lose 100% with no recourse
Absolute vs Relative Value
- Labor is Relative: We compare building features to closing deals
- Cash is Absolute: $20,000 is $20,000, period
- No Ambiguity: Cash value doesn’t require interpretation
This is why we negotiate Funding Blocks rather than forcing cash into rigid formulas.
The Negotiation Framework
Core Principles
Every funding situation is unique. Transparent negotiation creates better outcomes than false precision. Taking funding should require thought, but the friction should inspire creativity, not cause starvation.
The Healthy Tension
Funding Blocks are intentionally not frictionless because:
- Easy money leads to lazy thinking - Constraints force innovation
- Dilution should hurt a little - Makes you consider alternatives first
- But not so much it kills you - Companies need resources to survive
Before taking funding, always ask:
- Can we solve this without cash? (partnerships, revenue, trades)
- Can we reduce the need? (scope reduction, timeline extension)
- Is this the minimum viable amount? (don’t raise for comfort)
- Have we exhausted creative alternatives? (grants, customers, pre-sales)
Only after these questions should you negotiate a Funding Block.
Negotiation Guidelines by Stage
These are starting points, not rules. Every situation is unique.
Pre-Revenue / Idea Stage (Stage 0)
Context: Maximum risk, no validation, might fail tomorrow
Reimbursements:
- Below $5,000: Track as loans, can be repaid
- At threshold: Negotiate conversion based on context and existing unit distribution
- Above $10,000: Strong signal to negotiate Funding Block or prioritize repayment
Capital Contributions:
- Negotiated at time of investment
- Consider: company’s burn rate, runway extension, existing unit distribution
- Stage multiplier (×5) reflects maximum risk at this stage
- Both sides must agree on fair exchange
Post-MVP / Early Revenue (Stage 1-2)
Context: Product exists, seeking market fit, still high risk
Reimbursements:
- Threshold might increase to $10,000 given revenue potential
- Company should prioritize paying back reimbursements with early revenue
- Conversion negotiations factor in sustained support over time
Capital Contributions:
- Negotiated based on traction and market validation
- Stage multiplier (×3-4) reflects reduced but still significant risk
- Consider: monthly burn, customer pipeline, competitive landscape
- Larger amounts may warrant more structured terms
Growth / Scaling Stage (Stage 3-4)
Context: Product-market fit achieved, execution risk remains
Reimbursements:
- Should be rare — company should be self-funding operations
- Any operational loans should be paid back quickly
- Threshold for conversion might be $20,000+ given cash flow
Capital Contributions:
- Negotiated based on proven metrics and growth trajectory
- Stage multiplier (×2) reflects lower risk with proven model
- Larger amounts typically structured as formal investment rounds
- Consider: revenue multiples, growth rate, market opportunity
The Golden Rule
“Would this feel fair if our positions were reversed?”
If both sides can answer yes, you’ve found the right terms.
Funding Blocks are negotiated, not calculated, because:
- Cash is fundamentally different from labor contributions
- Context matters more than formulas
- Transparent negotiation beats false precision
- Both parties must feel good about the exchange
The dual system (cash ledger + Funding Blocks) protects everyone while maintaining flexibility for the unique circumstances every company faces.
Key Takeaways
- Reimbursements: Small operational expenses that can be paid back
- Capital: Large intentional injections that mint immediate Funding Blocks
- Threshold: Default ~$5,000 prevents premature equity allocation
- Repayment: Company can pay back reimbursements but not capital
- Protection: ALL cash gets downside protection regardless of type
- Flexibility: Adjust thresholds and treatment based on your context
Remember: The goal isn’t mathematical perfection. It’s finding terms that feel fair to both sides and documenting them clearly for the future.
Advisor Blocks Guide
How to recognize external contributions through Advisor Blocks - for advisors, mentors, and one-time value providers who aren't active contributors.
When to Use Advisor Blocks
Advisor Blocks are for external value that doesn’t fit Contribution or Funding Blocks:
Use Advisor Blocks for:
- External advisors providing ongoing guidance
- Key introductions that convert (investors, customers, partners)
- IP contributions (patents, algorithms, designs)
- Brand validation from known figures
- One-time expertise (legal setup, technical architecture)
Don’t use Advisor Blocks for:
- Active contributors doing Build/Sell/Manage/Maintain work → Use Contribution Blocks
- Cash or asset providers → Use Funding Blocks
- Regular employees or contractors → Use Contribution Blocks
Key distinction: Advisor Blocks are for people who aren’t part of the day-to-day team but provide significant external value.
Types of Advisor Contributions
Connections
Key introductions that materially impact the company:
- Investor introductions that lead to funding
- Customer introductions that convert to revenue
- Partnership connections that create strategic value
- Talent introductions for critical hires
Sizing guidance: 5-20 units typical, depending on impact
IP (Intellectual Property)
Valuable ideas, designs, or technology:
- Patents or patent applications
- Core algorithms or technical architecture
- Original business model or go-to-market strategy
- Brand identity or design system
Sizing guidance: 10-50 units typical, depending on centrality to business
Advice
Strategic guidance and mentorship:
- Regular advisory meetings (monthly/quarterly)
- Crisis navigation during pivotal moments
- Domain expertise in critical areas
- Board service (if not compensated otherwise)
Sizing guidance: 5-30 units per year typical
Validation
Brand and credibility lending:
- Public endorsement from respected figure
- Customer confidence from association
- Investor interest from involvement
- Media attention from connection
Sizing guidance: 5-15 units typical
Negotiation Framework
Unlike Contribution Blocks (triangular sizes), Advisor Blocks are negotiated:
Starting Questions
- What specific value is being provided?
- Is this one-time or ongoing?
- How material is this to our success?
- What would we pay for this in cash?
- What do similar advisors get elsewhere?
Common Patterns
Traditional Advisor (ongoing, monthly meetings):
- 0.25-1% equity over 2 years typical in market
- Fairly Exact equivalent: 10-20 units per year
- Vesting through continued involvement
Key Introduction (one-time, high impact):
- Investor intro that closes: 10-20 units
- First enterprise customer: 15-25 units
- Strategic partnership: 10-30 units
Technical IP Contribution:
- Core algorithm: 20-50 units
- Patent transfer: 30-75 units
- Full codebase: 50-150 units
Documentation Requirements
- Specific value provided
- Time commitment (if ongoing)
- Success metrics (if applicable)
- Vesting schedule (if multi-year)
- IP transfer agreements (if applicable)
Integration with Other Blocks
Timing
Advisor Blocks are typically created:
- At engagement start for ongoing advisors
- After value delivery for one-time contributions
- Upon successful outcome for introduction-based value
Interaction with Contribution Blocks
- Advisor Blocks are separate from Contribution Blocks
- Someone can have both if they transition roles
- Example: Advisor who later joins as CTO gets Advisor Block for past advice, then Contribution Blocks for active work
Stage Multipliers
Advisor Blocks can use stage multipliers when appropriate:
- Early advisors taking real risk: Apply current stage multiplier
- Late-stage advisors with proven company: Usually 1× or no multiplier
- One-time contributions: Negotiate case-by-case
Phantom Conversion
Advisor units typically:
- Convert to phantom if relationship ends
- Maintain economic participation
- No voting rights (usually none anyway)
- Clear documentation of advisor status
Best Practices
DO:
✅ Set clear expectations upfront about value and units
✅ Document specific contributions for future reference
✅ Use vesting for ongoing relationships (monthly/quarterly)
✅ Separate advisor work from active contribution clearly
✅ Negotiate fairly - would this feel right if reversed?
DON’T:
❌ Over-promise units for hypothetical future value
❌ Mix advisor and employee roles without clear boundaries
❌ Forget IP assignments when IP is involved
❌ Create without board approval for significant blocks
❌ Assume standard terms - every situation is unique
Red Flags:
🚩 Advisor wants units before providing value
🚩 Vague promises of “connections” without specifics
🚩 Demands that feel outsized relative to contribution
🚩 Unwillingness to document specific commitments
🚩 Treating advisor equity like employee equity
Key Concepts
Triangular Block Sizes
Standard block sizes that follow a triangular growth pattern:
- Block 1: 1 unit
- Block 2: 3 units
- Block 3: 6 units
- Block 4: 10 units
- Block 5: 15 units
- Block 6: 21 units
Stage Multipliers
Risk-based multipliers that decrease as the company matures:
- Stage 0 (Conception/Prototype): 5× multiplier
- Stage 1 (Early Build/MVP): 4× multiplier
- Stage 2 (Early Market): 3× multiplier
- Stage 3 (Growth/Operation): 2× multiplier
- Stage 4 (Steady State): 1× multiplier
Core Roles
- Build: Product development, engineering, design
- Sell: Sales, marketing, business development
- Manage: Operations, strategy, leadership
- Maintain: Support, infrastructure, quality
Important Implementation Notes
- Strong defaults handle 90% of cases
- Use judgment for the remaining 10%
- Document all adjustments and reasoning
- Transparency builds trust
- Early risk deserves meaningful reward
- Every contribution matters
- Keep it simple enough to explain