![]() ![]() No founder should ever be asked to re-vest their shares without significant protections in place against removal for some random reason. If I had questions about a founder that made me think about replacing them, I would simply not invest in the first place this is fairly typical of early-stage investors. While there might be some bad actors out there, speaking personally as an early-stage investor, the last thing I want to do is remove founders the whole point of investing is that we’re betting on the team’s ability to execute - finding someone else willing to take a risk on your product vision is next to impossible. The fear is that an investor will put money into the business and then remove the founders in favor of people they believe are better for whatever reason. A word on re-vestingįounders understandably get nervous when asked to re-vest some portion of their shares. This can be a nice way of showing you’ve been thoughtful about building your business and will help put them at ease. By the time you come to the table, potential investors can see your vesting schedule at work. My advice for any startup is to build and start a vesting schedule for your options before you even start looking for funding. The reality is that terms can be abused by both sides of the table building trust is essential. Startup vesting schedules can create the impression that investors are troublesome and controlling. The loss of a founding member creates a difficult vacuum to fill, and having substantial equity available to someone who can do the job will act as a strong incentive for a new person to come on board. It’s very rare that a company starts out with a massive executive team more commonly, everyone ends up wearing multiple hats. There’s often no need to demonize a founder who decides to walk away, which makes the founder vesting agreement even more critical because it formalizes the process. Personal circumstances may arise: a spouse has to move to accept a job, or a family member requires long-term medical care.They may stop getting along with a co-founder or other executive.This does happen, and it can be for any number of completely legitimate causes: They don’t want to be left holding the bag if an entrepreneur decides they don’t want to continue the journey for whatever reason. Venture investors go into business with founders in the hope that they’re going to build a company together. Waiting until the problem comes up to decide what’s fair leaves you exposed to emotion, and there’s little incentive on the part of the departing founder to help with a solution. If someone leaves the team, you need to have a plan on how to handle the equity that’s fair to everyone. ![]() Building value in a startup is a team sport. This is the sort of scenario the founders’ vesting schedule is designed to avoid. The next day, one of the founders decides they can’t get along with their co-founders and it’s time to do something else, then joins a large tech company while the other two founders spend months of 80-hour workweeks building the business without any promise of success. You may have heard other founders complain about the apparent burdensome nature of these terms, but they exist for everyone’s protection, including yours.Ĭonsider a three-person founder team that’s successfully raised a round of funding, and none of their shares are subject to any vesting - they own them all on day one. Most institutional investors will require you to impose some level of startup vesting. Not that it never happens, but it’s pretty rare. Very few founders get their shares immediately. Founder vesting agreements and why they’re important This includes the intricacies of startup vesting - particularly founder vesting agreements - and pro rata rights. In this post, I’ll delve into some more subtle details and challenges involved in negotiating your term sheet as an entrepreneur. There have been many posts put together on things like valuation and types of stock, SAFEs, and option pools. You probably already know the basics of term sheets. ![]()
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