Startup Professionals Musings

MAY 18, 2015

When an entrepreneur first incorporates his or her business, he or she may find him or herself the proud owner of 10 million shares of common stock, commonly called founder’s shares. Spread stock issuance over an earning period. This is the purpose of a vesting schedule, which issues allocated stock over time.

Stock 120

Stock Vesting Common Stock Founder Vesting 120

Startup Professionals Musings

JANUARY 29, 2018

I’ll never forget that great sense of excitement I felt when I incorporated my first business, and realized that I was now the proud owner of 10 million shares of common stock. Always specify a vesting period for new partners. Maximize your own vesting if the business is acquired early.

Stock 129

Stock Vesting Preferred Stock Cofounder 129

Gust

MARCH 16, 2014

In reality, so-called “Founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. These shares are allocated and committed, but not really issued and owned (vested) until later.

Stock 175

Stock Vesting Common Stock Founder Vesting 175

Scott Edward Walker

OCTOBER 19, 2020

Usually this is done as part of the founder’s Restricted Stock Purchase Agreement pursuant to which the IP is contributed to the startup as full or partial consideration for the shares of common stock issued to him in a tax-free transaction under Section 351 of the Internal Revenue Code.

IP 52

IP Software Review Founder Technical Review 52

View from Seed

DECEMBER 4, 2014

You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently. It’s also worth keeping in mind that regardless of how the founders’ common stock is divided, there will be future issuance of stock that will dilute the founders over the lifecycle of the company.

Equity 315

Equity Founder Sweat Equity Cofounder 315

Berkonomics

MARCH 8, 2018

Give one percent equity to each outside board member vesting over four years of service. Pay early stage board members of companies that are not lifestyle businesses one percent of the fully diluted equity in the form of an option that vests over four years of service. Here is my best advice, based upon many boards and many years.

Early Stage 102

Early Stage Vesting Stock Options Preferred Stock 102

Startup Professionals Musings

OCTOBER 7, 2010

In reality, so-called “founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. These shares are allocated and committed, but not really issued and owned (vested) until later.

Stock 214

Stock Vesting Common Stock Founder Vesting 214

Agile VC

DECEMBER 4, 2014

You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently. It’s also worth keeping in mind that regardless of how the founders’ common stock is divided, there will be future issuance of stock that will dilute the founders over the lifecycle of the company.

Cofounder 255

Cofounder Equity Founder Sweat Equity 255

Up and Running

DECEMBER 1, 2015

Typically, employers that offer employees equity compensation will do so in the form of common stock, preferred stock, or stock options. Stock options are issued to employees usually through an Employee Stock Option Plan (ESOP) and include what is called a “vesting period.” Restricted stock: .

Equity 60

Equity Employee Stock Options Vesting 60

www.mattbartus.com

SEPTEMBER 24, 2011

We will grant him/her X% fully diluted shares up front, and every time he/she makes an introduction, he/she will vest in 100 shares.” Imagine when it comes time to sell the company and the buyer says “Tell me how many shares are vested because this will impact how much we pay per share.” What are the potential issues?

Equity 40

Equity Vesting Silicon Valley Intellectual Property 40

Agile VC

DECEMBER 4, 2014

You can then work with your law firm to formally draw up founder common stock paperwork either then or subsequently. It’s also worth keeping in mind that regardless of how the founders’ common stock is divided, there will be future issuance of stock that will dilute the founders over the lifecycle of the company.

Cofounder 173

Cofounder Equity Founder Sweat Equity 173

Eric Friedman

JUNE 27, 2016

Total = 0.75% for 3 advisors that vest as you see fit to help you over the next 1–4 years (more on vesting below). Vesting Schedules. Advisors typically ask to vest in equal installments over 48 months. Another schedule is to use a traditional FTE grant; 4 year vesting with a 1 year cliff. Advisor 2 = 0.25%.

Equity 98

Equity Vesting Cap Table Common Stock 98

Both Sides of the Table

SEPTEMBER 18, 2014

of the time I have no vested interest in having the debate. If you want to give them a 50% discount offer them $1 of common-stock warrants (no liquidation preference) for every $1 of stock they buy. If you want to give them a 33% discount you offer them half of a $1 common-stock warrant for every $1 share they purchase.

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

The Startup Lawyer

MARCH 17, 2010

4) Type of Shares: Common Stock. (5) 5) Par Value of Common: $0.0001. (6) 8) Vest Founders Shares?: 9) Vesting Schedule for Founders Shares: 4 years with a One Year Cliff. (10) Here’s what I’d do in the beginning: Incorporation. (1) 1) Entity Choice: Corporation or Corporation. (2) Hell Yes. (9)

Accredited Investor 112

Accredited Investor Delaware NDA Vesting 112

The Startup Lawyer

MARCH 17, 2010

4) Type of Shares: Common Stock. (5) 5) Par Value of Common: $0.0001. (6) 8) Vest Founders Shares?: 9) Vesting Schedule for Founders Shares: 4 years with a One Year Cliff. (10) Here’s what I’d do in the beginning: Incorporation. (1) 1) Entity Choice: Corporation or Corporation. (2) Hell Yes. (9)

Accredited Investor 112

Accredited Investor Delaware NDA Vesting 112

K9 Ventures

NOVEMBER 21, 2011

I firmly believe that if there are early employees who have been with the company long enough and have meaningful enough stakes in the company, they too should have the opportunity to sell some of their vested stock, or vested and exercised options. The concept of the Series FF stock is a good example of this.

Founder 87

Founder Common Stock Preferred Stock Stock 87

K9 Ventures

NOVEMBER 21, 2011

I firmly believe that if there are early employees who have been with the company long enough and have meaningful enough stakes in the company, they too should have the opportunity to sell some of their vested stock, or vested and exercised options. The concept of the Series FF stock is a good example of this.

Founder 84

Founder Common Stock Preferred Stock Stock 84

Steve Blank

OCTOBER 24, 2017

The founders along with all the other employees would vest their stock over 4 years (earning 1/48 a month). They had to hang around at least a year to get the first quarter of their stock (this was called the “cliff”). Some founders have three-year vesting. Today, these are no longer hard and fast rules.

Founder 245

Founder Technical Review CTO Hire IPO 245

www.payne.org

SEPTEMBER 22, 2011

2 Stock Classes: Common and Preferred. 4 Vesting. 5 Stock vs Options. 6 Founders / Restricted Stock. The re-heating of the venture funded tech market has pushed a heat up of the hiring market, and Im getting more calls from friends asking for help understanding startup stock (equity) offers. 3 Dilution.

Equity 56

Equity Employee Vesting Preferred Stock 56

Both Sides of the Table

MAY 13, 2013

Chief Vesting Officers)? If the money comes from professional investors it usually has a “liquidation preference” meaning that their money comes out before the founders or common stock. (If If I don’t commit to millions of dollars of acquisitions I will … die? The Aqui-hire Business.

Liquidation Preference 357

Liquidation Preference Early Stage Retention Lock-up Period 357

Berkonomics

OCTOBER 26, 2010

Give one percent equity to each outside board member vesting over four years of service. Pay early stage board members of companies that are not lifestyle businesses one percent of the fully diluted equity in the form of an option that vests over four years of service. Here is my best advice, based upon many boards and many years.

Stock Options 66

Stock Options Early Stage Stock Vesting 66

Gust

SEPTEMBER 17, 2014

of the time I have no vested interest in having the debate. If you want to give them a 50% discount offer them $1 of common-stock warrants (no liquidation preference) for every $1 of stock they buy. If you want to give them a 33% discount you offer them half of a $1 common-stock warrant for every $1 share they purchase.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Both Sides of the Table

MARCH 21, 2010

In this example if they sell only $10,000 in total in year one they own zero warrants the same way that an employee with options who quits after 6 months usually owns no options when they leave your company (due to the cliff period in most vesting programs). Make the warrants for common stock and not preferred stock.

Warrant 298

Warrant Dilution Startup Stock Options 298

Gust

DECEMBER 8, 2011

Determine the allocation of equity among co-founders, early employees or other service providers, and future contributors as applicable, as well as the vesting schedule , if any, that will apply. Make escrow arrangements for restricted stock (i.e., Pick a name for the new legal entity (e.g., Newco, Inc.”)

Intellectual Property 139

Intellectual Property Non-disclosure Agreement Delaware Stock 139

ithacaVC

DECEMBER 13, 2013

Let’s assume that Founder X owns 800,000 shares of common stock and Founder Y owns 1,300,000 shares of common stock and that the option pool in total has 356,758 shares allocated (to make the total stated above). That is fine, and should be in the form of option grants vesting over time. Back to our basics.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Startup Company Lawyer

FEBRUARY 21, 2010

I was speaking at an event last month to a group of CEOs and was surprised by the number of CEOs that were worried about the value of their common stock in a M&A transaction. Due to aggregate liquidation preferences that may exceed the acquisition price in an M&A deal, common stock may be rendered worthless.

Retention 31

Retention Liquidation Preference Employee Common Stock 31

Tim Keane

JANUARY 12, 2010

These include: ·       Vesting of Founder Stock. Especially in situations where the founders have a large position and are key employees, it is not uncommon for investors to request that they agree to have some portion of their holdings vest on a schedule.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

The Next Web

JUNE 15, 2012

And giving equity as compensation can help build loyalty among contractors and consultants, as they now have a truly vested interest in your company’s success. All too often, startups grant stock options to people based on a handshake, rather than written contract. Imagine if you grant stock options to a handful of consultants.

Equity 116

Equity Stock Options Vesting Stock 116

Berkonomics

JULY 10, 2010

For this, an advisory board member for a small to medium sized company should expect to receive options equal to ¼% of the fully diluted stock of the company, vesting over two years, and subsequent grants of the same size if renewed in subsequent two year intervals. [Email readers continue here.]

Advisory Board 63

Advisory Board Stock Options Stock Common Stock 63

blog.simeonov.com

FEBRUARY 22, 2010

In one case the CEO had a different vesting schedule because he had spent a lot more time than the rest of the founding team on the idea. It outlines key points of agreement between founders around IP ownership, equity ownership, vesting, etc. There is some up-front vesting acceleration. See my post on the best vesting schedule.)

Founder 44

Founder Vesting Agile Startup 44

Early Growth Financial Services

DECEMBER 17, 2012

What is founder restricted stock? Founder restricted stock refers to shares of common stock that are owned by a founder but are subject to forfeiture upon the occurrence of certain contractually agreed upon events.

Stock 35

Stock Founder Common Stock Private Equity 35

www.paulgraham.com

APRIL 28, 2010

Some VCsnow require that in any sale they get 4x their investment backbefore the common stock holders (that is, you) get anything, butthis is an abuse that should be resisted. If VCs got de factocontrol of the company and fired one of the founders, hed lose anyunvested stock unless there was specific protection against this.So

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

thestartuplawyer.com

FEBRUARY 24, 2010

Contact The Startup Lawyer: Home Page About Contact FAQs Glossary Ryan Roberts Law: Home Page Social Networks: Facebook Twitter LinkedIn Flickr Delicious Digg Last.FM He obviously never launched a startup and got shafted by a co-founder. He obviously never launched a startup and got shafted by a co-founder. Leave a Reply Click here to cancel reply.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40

Up and Running

SEPTEMBER 20, 2021

Furthermore, there are various forms of equity, such as preferred stock, common stock, and convertible notes, which influence the present and potential future investors. Total share ownership is the sum of the common stock, stock options, preferred stock, and any other stock category for a single individual.

Cap Table 112

Cap Table Pre-Money Valuation Stock Options Option Pool 112

venturehacks.com

MARCH 21, 2008

Advisor compensation Whether you’re hiring a normal advisor or super advisor: Advisory shares are usually issued as common stock options. The options typically vest monthly over 1-2 years with 100% single-trigger acceleration and no cliff. Advisory shares are normal common stock. What are advisory shares?

Advisory Board 44

Advisory Board Cap Table Vesting Equity 44

Austin Startup

MAY 17, 2017

Instead, the company just has a loose set of individual advisors they work with on strategic matters, often in exchange for equity with a vesting schedule. Their interests as an investor are more aligned with the new VCs investing in the Series A than they are with the Common Stock. They just advise.

Seed Stage 48

Seed Stage Startup Cap Table Angel Investor 48

venturehacks.com

OCTOBER 21, 2010

Third, if you sell the company before the Series B, all un-issued and un-vested options will be cancelled. This reverse dilution benefits all classes of stock proportionally even though the common stock holders paid for all of the initial dilution in the first place!

Option Pool 68

Option Pool Pre-Money Valuation Dilution Warrant 68