What is a grunt fund?
A grunt fund gives fiscal value to all contributions, tangible and intangible, a founder makes to a startup. Everything from intellectual property and connections to time and cash is valued by the fund. A complex formula then assigns weight to each contribution and allocates company equity stakes amongst the founders accordingly. The purpose of grunt funds is to make sure that startup founders are rewarded for everything they offer their company, not just the money they actually invest. Grunt funds are dynamic meaning they monthly recalculate equity stakes as contributions to the company change.
Reasons Why You Should Consider a Grunt Fund
- It can help prevent legal battles and drama between company founders
- It is dynamic, meaning it accounts for real-time changes in contributions
- Accounts for non-cash contributions, such as ideas, relationships, and time
- Helps calculate fair buyout price if someone leaves company before it breaks even
Reasons Why You Shouldn’t Consider a Grunt Fund
- It avoids the necessity of having hard-conversations, open communication, and trust between company founders
- It is tedious and often leads to greater legal fees
- Investors tend to be very skeptical of the formula
- There are more traditional, proven mechanisms that accomplish the same thing (e.g. vesting schedules)
Grunt funds may work well for founder teams who are unsure of their ability to consistently contribute. The founders need to be able to assign a dollar value for their contributions, including contributions made later in the life of the company, be it work or assets such as intellectual property, equipment, or rent. Time tracking is a matter of trust but can be linked to production metrics to confirm actual productivity. Using the online tools can help track contributions and update equity in real-time.
This article was written by attorney Todd Taylor.