Rethinking Founder Vesting

K9 Ventures

One of these norms is how founder vesting and employee vesting works. I won’t get into employee vesting today as that has much more to consider than I have time to cover in this short post today. Here is a good summary post from Cooley GO on Founder Vesting. There are two main reasons for founder vesting: To ensure founders stick around and build the company. If that’s the case, then why isn’t founder vesting spread out over a much longer period of time?

First Round Funding Terms and Founder Vesting

Both Sides of the Table

One very important item from Chris’s original post that wasn’t picked up by Fred or Brad is founder vesting. Chris writes that early-stage deals should have: Founder vesting w/ acceleration on change of control. In my first company there was no vesting in the seed round.

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Voting Rights of Vesting Shares

The Startup Lawyer

One of the most asked questions I receive when setting up new startup companies is “Do my vesting shares have any voting rights?” ” Or in other words, does a stockholder only get to vote based on their amount of vested shares? Since most of the times a founder subjects their entire share amount to a vesting … Continue reading → The post Voting Rights of Vesting Shares appeared first on Startup Lawyer.

Curator: Amazon Culture Shock, Work Wisdom, Vesting Schedules, Email Snooze

YFS Magazine

Here’s our weekly link roundup of small business buzz, musings and muchness. A curation of the best small business talk around the web. News curator small business news

First Round Funding Terms and Founder Vesting

Both Sides of the Table

This is part of my ongoing series “Pitching a VC“ There’s a great meme developing this morning on the need to simplify funding terms and documents. The meme was kicked off by Chris Dixon with this post saying that term sheets need to be simplified and align investor / founder interests. That prompted Fred Wilson’s blog [.].

The Importance of Vesting Schedules – Part 2

Scott Edward Walker

“I didn’t even know what a vesting schedule was… [and] that mistake probably cost me billions of dollars.” Indeed, the failure to set-up vesting schedules is now the most common mistake I see startups make. Just in the last week, I received three phone calls from potential new startup clients who had issues between the co-founders and no vesting schedules. This is exactly what would happen without vesting schedules.

Vested Finance Lands $5 Million in Funding

SiliconHills

Vested Finance, an Austin-based financial technology startup, announced it has closed on $5 million in seed financing led by Sandleigh Ventures. It has offices in Austin, San Francisco and Washington, D.C. […] The post Vested Finance Lands $5 Million in Funding appeared first on SiliconHills. The Austin-based company plans to use the money to expand its operations by hiring a development team to create and distribute its mobile app.

The Importance of Vesting Schedules for the Founders

Scott Edward Walker

One of the biggest mistakes I see startups make is failing to set-up vesting schedules for the founders. v=-R01YcgJ3Yw What Is a Vesting Schedule? A vesting schedule is a mechanism by which the ownership of the stock issued to the founders is earned over time (typically four years, as discussed below), rather than immediately. Why Do You Need Vesting Schedules? What Is the Typical Vesting Schedule? Where Is the Vesting Schedule Addressed?

Startup founders: Here’s why vesting is your best friend

The Next Web

This is why vesting is so important. Investing in vesting. Vesting means that at the very beginning each founder gets his or her full package of stocks at once to avoid getting taxed for capital gains; but, the company has the right to purchase a percentage of the founder’s equity in case he or she walks away. In essence, vesting protects founders from each other and aligns incentives so everybody focuses towards a common goal: building a successful company.

Equity basics: vesting, cliffs, acceleration, and exits

The Startup Toolkit

false As a cheatsheet, the “normal” equity structure is: Founder terms: 4 year vesting, 1 year cliff, for everyone, including you. 2.0% ) : 4 year vesting, optional cliff, full acceleration on exit. When it comes to equity terms, there are only 3 things to understand: vesting, cliffs, and acceleration. Cliffs & vesting. Vesting is how we fix that. Everyone who has equity should really, really be vested. Apart from that, it acts like normal vesting.

How to Protect Your Startup Founder’s Shares

Startup Professionals Musings

These shares are allocated and committed, but not really issued and owned (vested) until later. Typically, vesting in startups occurs monthly over 4 years, starting with the first 25% of such shares vesting only after the employee has remained with the company for at least 12 months (one year “cliff”). Vesting always stops when an employee leaves the company. Vesting with no cliff. Accelerated vesting conditions.

A Different Approach to Refreshing Stock Option Grants

Feld Thoughts

Assume you hire someone and grant them 10,000 options with monthly vesting of four years with a one year cliff. That means that after one year, they get 25% of their options and then start vesting the remaining options monthly at a rate of 1/48 (208.3 On day 1 of year 3, the person has vested 50% of their options, or 5,000 of them and still has 5,000 left to vest. You just changed their first four year vesting package from 10,000 options to 11,250 options (2,812.5

What is the best way to divide up ownership in a startup?

Grasshopper Herder

Finding Co-Founders Investment co-founders equity vesting scheduleWhen considering this issue, many people will focus on incentivizing the founders as well as issues of equality and equity. I would recommend a deep understanding how roles and responsibilities will be divided prior to discussing the equity split.

4 Deadly Legal Mistakes That Startups Make

Scott Edward Walker

Vesting Restrictions. The first deadly mistake relates to vesting restrictions. Indeed, you must make sure that all of the shares of common stock issued by the corporation to the founders are subject to vesting restrictions – which means that ownership of the shares would vest over time (instead of all of the shares being owned outright on day one).

Legal Checklist for Startups

Scott Edward Walker

Set-up vesting schedules for the founders (see post here ) and file 83(b) elections with the IRS (see #3 here ). Startup Issues 409A 83(b) election accredited investors checklist for startups corporate lawyer equity IP ownership legal checklist legal fees stock options vesting schedulesI’ve been a corporate lawyer for 17+ years, and there are certain fundamental legal mistakes that I’ve seen startups repeatedly make.

Beyond Policy

OnlyOnce

When you fire an employee immediately before a major block of stock options vest, what’s the right thing to do? Vest the options. Business Culture Human Resources Leadership Management Return Path car service payroll vestingBeyond Policy. Policies are an important part of managing employees. Similarly, contracts are an important part of running the commercial side of the business.

How To Launch a Startup and Avoid Ending-up in Jail

Scott Edward Walker

Not only are there key contractual issues that must be buttoned-down (like vesting and IP assignment ), but also there is a minefield of laws and regulations that must be complied with. Startup Issues accredited investors Chris Dixon finders illegal immigrants independent contractor IP assignment minimum wage misclassifying employee payroll taxes privacy laws sales taxes securities laws startup startups vesting

Entreprenuer Network

SoCal CTO

skip to main | skip to sidebar SoCal CTO Thursday, March 1, 2007 Entreprenuer Network Great post by Ben Kuo - The Importance of the “Network&# to Entrepreneurs - the informal connections between people in the technology industry here who have a vested interest in helping entrepreneurs take their companies to the next level.

Startup Stock Options – Why A Good Deal Has Gone Bad

Steve Blank

Startup employees calculated that a) their hard work could change the odds and b) someday the stock options they were vesting might make them into millionaires. The stock trickled out over four years, as you would “vest” 1/48 th of the option each month. And just to make sure you were in the company for at least a year, with most stock option plans, unless you stayed an entire year, you wouldn’t vest any stock. Like stock options, RSU’s vest.

Is Dead Equity Crippling Your Company?

Altgate

They fail to include vesting terms (i.e., It is more common that startups include vesting terms for their non-founding hires. However, those vesting periods often underestimate the time horizon over which key hires should be adding value to the startup. Startups overwhelmingly use “4 years of vesting” as a rule of thumb; as shown in Figure 8.8 of The Founder’s Dilemmas , 77% of non-founding senior executives have 4 years of vesting.

Incorporate ‘yesterday’

K9 Ventures

4) Likewise, the date of incorporation often plays a role in what portion of the founders’ stock is already vested at the time of a venture financing. News Startup Life VC business due diligence incorporation legal starting up startup vestingEver since I found the blog Startup Company Lawyer , I’ve had a high regard for its author, Yokum Taku , a partner at Wilson Sonsini Goodrich & Rosati. Yokum’s posts are always chock-full-of-good-information.

Founder’s Stock Is Gold, If You Know The Rules

Startup Professionals Musings

These shares are allocated and committed, but not really issued and owned (vested) until later. Typically, vesting in startups occurs monthly over 4 years, starting with the first 25% of such shares vesting only after the employee has remained with the company for at least 12 months (one year “cliff”). Vesting always stops when an employee leaves the company. Vesting with no cliff. Accelerated vesting conditions.

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8 Ways To Maximize The Value Of Your Startup Stock

Startup Professionals Musings

This is the purpose of a vesting schedule, which issues allocated stock over time. Typically, vesting in startups occurs monthly over four years, starting with the first 25 percent of shares vesting only after an owner has remained active for at least 12 months (one year cliff ). Key founder vesting should have no cliff. Accelerate your own vesting if pushed out or the startup is acquired.

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Is Dead Equity Crippling Your Company?

Altgate

They fail to include vesting terms (i.e., It is more common that startups include vesting terms for their non-founding hires. However, those vesting periods often underestimate the time horizon over which key hires should be adding value to the startup. Startups overwhelmingly use “4 years of vesting” as a rule of thumb; as shown in Figure 8.8 of The Founder’s Dilemmas , 77% of non-founding senior executives have 4 years of vesting.

Founder Restricted Stock 101

Early Growth Financial Services

The company’s repurchase right in most cases is triggered by a termination … Continue reading → Equity / Debt / Venture Funding common stock founders repurchase restricted shares restricted stock startups vesting scheduleBy Sean Greaney: sgreaney@stubbsalderton.com Originally published on Stubbs Alderton & Markiles, LLP Sean Greaney, attorney with Stubbs Alderton & Markiles, LLP gives an informative introduction to Restricted Stock for startup companies.

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The New Deal – A Founding CEOs Value is Non Linear

Steve Blank

As a founder I fought with VC’s over vesting as they brought in a new CEO and walked me out the door. As a board member I negotiated with founding CEO’s over vesting when I thought it was their time to go. Yet the traditional vesting model ignores this.

How do you pay an early stage board?

Berkonomics

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. Further, the option should contain a special clause that accelerates vesting to 100% upon a change of control in the corporation, which aligns the board member with the best interests of the corporation itself.

8 Ways To Nurture New Venture Stock Into A Goldmine

Startup Professionals Musings

Always specify a vesting period for new partners. Typically, vesting in startups occurs monthly over four years, starting with the first 25 percent vesting only after a participant has satisfied commitments for at least 12 months (one year cliff). Maximize your own vesting if the business is acquired early.

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Change of Control Option Acceleration

ithacaVC

I was recently in a board meeting and the topic of change of control stock option vesting acceleration came up. But the recent discussion confirmed my view that double trigger stock option vesting acceleration is very clunky, difficult for management teams to understand when it actually matters (at the time leading up to the change of control) and, in my view, should be used infrequently.

Pitching A Startup To Investors: Ways To Legally Protect Your Ideas

YoungUpstarts

Also remember that it might not make sense to pitch to investors who already have a vested interest in businesses and brands that will be competitors to your startup, since this could put you in a more precarious position.

Founder’s Stock is Simple, but Watch the Details

Startup Professionals Musings

These shares are allocated and committed, but not really issued and owned (vested) until later. Vesting always stops when an employee leaves the company. Vesting starts now. They might also have special terms in the case of termination or demotion that accelerate vesting.

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5 Keys To Negotiating Your Fair Share Of Any Startup

Startup Professionals Musings

Even with an agreed initial equity split, it’s smart to have Founder’s stock actually issue or vest over a period of at least two years, on a month-by-month basis. I always tell entrepreneurs that two heads are better than one, so the first task in many startups is finding a co-founder or two. You need to find the skills or experience you don’t have in business, technology, or money. So the first question I usually get is what percent of the company or equity is that person worth?

How Much Equity Should You Give Your Cofounder? (via Michael Seibel)

Scott Edward Walker

at 1:15) “Your primary mechanism of safety when it comes to giving equity is vesting and a cliff.” (at 1:32) [You can also see my posts: “ The Importance of Vesting Schedules for Founders ” and “ The Importance of Vesting Schedules – Part 2 ”] “It probably benefits you more often than not to be more generous with the equity that you give your cofounders, not less.” (at To Our Clients & Friends: Welcome to our weekly series “ Helping Entrepreneurs Succeed.”

Office Hours at SXSW

The Startup Lawyer

If you want to discuss liquidation preferences, vesting schedules, or anything startup-related, I’ll be holding an office hour session this Friday March 7th from 130-230pm at UP Global’s SXSW Startup Oasis. The office hour portion of Startup Oasis is blocks of time where you can meet with mentors across a diverse range of skill sets. […]. Startup Lawyer

Founder’s Stock Is Gold, If You Know The Rules

Gust

These shares are allocated and committed, but not really issued and owned (vested) until later. Typically, vesting in startups occurs monthly over 4 years, starting with the first 25% of such shares vesting only after the employee has remained with the company for at least 12 months (one year “cliff”). Vesting always stops when an employee leaves the company. Vesting with no cliff. Accelerated vesting conditions. Image via Flickr by BullionVault.

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Robots in the Spotlight at Rackspace

SiliconHills

By LAURA LOREK Founder of Silicon Hills News Coaches in wizard’s hats, kids in bunny ears, others donning purple and yellow vests made out of duct tape. A student riding a bike to recharge all of the electronics from his high school team to compete in the FIRST Tech Challenge Robotics Alamo Regional Championship. A […] The post Robots in the Spotlight at Rackspace appeared first on SiliconHills. San Antonio Alamo Regional Competition FIRST FTC Rackspace Robotics

Free Riding is a Serious Problem

ithacaVC

Here is an illustration to drive the point home: The only way to truly protect the founders from each other in this situation is by making sure that the equity owned by the founders reverse vests. The typical vesting period would be 3 years. Think of reverse vesting as each founder owning their shares outright, but with a risk of forfeiture of any unvested portion if they leave the company prior to the vesting period expiring. How long is vesting period?

Why Lawsuits Are On the Rise at Startups and What To Do About It

Both Sides of the Table

He had a stock option vesting program and had vested a significant amount of his stock but not all. He’s suing the company to get all of his stock options even though he signed a vesting agreement. Make sure you have standard vesting – even before your raise capital. At least one year cliff and 4-year vesting. *. Lawsuits.

8 Questions You Should Ask Before You Join A Startup

Startup Professionals Musings

Calculate employee stock option values and vesting times, as well as salary. Every startup founder loves to prompt for questions from investors and potential key team members about their vision, and the huge opportunity that can be had with their disruptive technology. Yet if you are on the other side of the table, there are some other key questions that you need to ask, which will tell you more about the real success prospects for this business.

If I Launched a Startup

The Startup Lawyer

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) 2) State of Incorporation: Delaware. (3) 3) Authorized Shares in Charter: 10,000,000 Shares. (4) 4) Type of Shares: Common Stock. (5) 5) Par Value of Common: $0.0001. (6) 6) Initial Founders Issuance: 8,000,000 Shares. (7)

If I Launched a Startup

The Startup Lawyer

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) 2) State of Incorporation: Delaware. (3) 3) Authorized Shares in Charter: 10,000,000 Shares. (4) 4) Type of Shares: Common Stock. (5) 5) Par Value of Common: $0.0001. (6) 6) Initial Founders Issuance: 8,000,000 Shares. (7)

Dear elizy: How should I split equity with my co-founders?  And how will that affect raising a seed round?

Hippoland

First off, whatever you decide, you should implement vesting. Standard vesting practices in the Silicon Valley at this time of writing are 4 year vesting with a 1 year cliff. These days, I’ve sometimes seen 3 year vesting with a 1 year cliff, which would also be ok. Former co-founders who have contributed about 1-2 years of vesting typically end up with ~10-15% equity since they didn’t vest their full potential.

Walker Twitter Highlights: February 1st – 21st

Scott Edward Walker

I didn’t even know what a vesting schedule was… That mistake probably cost me billions of dollars.” New Post: The Importance of Vesting Schedules – Part 2: [link]. I’m using Twitter as a form of micro-blogging to share interesting articles, blog posts and video clips relating to startups, entrepreneurship and legal issues. Below are my five most popular tweets (via bitly ) for the past three weeks. Cheers, Scott. Top 5 Tweets. “I