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How to calculate pre-revenue partner buy-in and impact from unequal partner cash investment?

I have a start-up with 2 partners.  One year in.  All 3 of us have been full-time on development.  Pre-revenue.  One more person has planned to join us since initial planning began with the plan to be 25% equal split.  The three existing partners put in $20k each, no salaries paid.  Q1: What would be the best method to calculate the value that partner 4 needs to buy in with?  Q2:  We need cash to advance development.  One partner and the soon-to-be are willing to provide it, about $100k each.  What would be the best way to handle the cash infusion in terms of equity or loan, and how to value sweat equity of the partners not providing additional cash at this time?  Thanks!

  • Take the slicing pie method. Use fair market salaries (certainly not same hypothetical salaries for each partner). Use fair market value for the current state of the company. Maybe you invested, so far, a total of 1 million $, in cash and work. This is irrelevant. What counts is: how much is the company worth now. Maybe much more, maybe much less than this 1 million $.

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    • The Slicing Pie method definitively does not consider the value of a pre series A company in determining equity of people joining the company in the pre – series or pre breakeven state.

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        • In Slicing pie, it doesn’t consider any notion of the value or worth of the company. If it’s pre-series A the value of the company is irrelevant, the only thing that matters is the fair market value of the inputs made into the company from company start to the present day, and the inputs into the company from all partners (the old and the new) into the company up to the company reaches a Series A funding round or breakeven (enough revenues to pay all partners, employees, and other expenses).

          At Series A, or breakeven, is the first time that the company’s worth can be evaluated. For inputs or funding rounds prior to that stage the companies value doesn’t exist and is not a consideration.

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          • The statement “At Series A, or breakeven, is the first time that the company’s worth can be evaluated. For inputs or funding rounds prior to that stage the companies value doesn’t exist and is not a consideration.” is nonsense.

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