There are three situations in which you would want to stop using the Grunt Fund.

• When you have built up so much theoretical value that you have reached a point of diminishing returns.

In the beginning a few hours of work might earn a significant slice of the pie. $100 in contributions against a $900 TBV would earn 10% of the pie. However, if your TBV is $500,000 then your $100 incremental slice isn't much. This would be a good time to convert the pie to real equity.

Participants are no longer motivated by the incremental pie and new incentive program can be developed. Additionally, by the time this much work has gone into the pie you will know who the dedicated and valuable players are likely to be.

• You have started to build an actual business model with predictable returns

Not all companies need to take on outside money. You may be smart or lucky enough to figure out how to grow your business based on revenues. In these cases the right time to stop using the Grunt Fund is when you have developed a predictable business model that looks like it's going to be a winner.

"Predictable" means that you have a revenue stream in the foreseeable future, you understand your basic cost structure and you have a plan for growth.

When you have this, you have a business that may have built actual value and you will need to hammer out the equity details more formally. This means calling your attorney, telling him or her how much pie everyone gets and asking them to put together an Operating Agreement or Shareholder's Agreement that will allow you to continue with your current team.

You may want to include some vesting or options program to help retain people, but make sure everyone who has earned pie is treated the same. It's not fair for you to change the rules on individual people. (Keep in mind that if you later raise outside capital the new investors may put your equity in a vesting program even if it has already been issued.)

• The company receives a cash investment that is large enough to warrant legal and financial formalities.

Sometimes investors will impose some oppressive terms that seem unfair. The leader Grunt and other senior level Grunts will have to determine if it's worth it. Sometimes the company is desperate enough to have to take less-than-perfect investors. The important thing is that all Grunts get treated the same under the new investor terms.