Vesting

Structering vesting plan for co-founders

Stefan Brunner Cofunder and COO at TheTechMap, Inc

January 15th, 2013

I have a question in regards to structuring a vesting plan for co-founders.
Our situation is that we are three co-founders with equal share. Because our
project is a non-profit community project, we cannot be sure about
everybody\'s time commitment as time passes on. Our project might not become
a fulltime opportunity for some time if ever.

So we were thinking when one partner drops out, that the other partners vest
with more share for the time of service they participate. The question is
how to structure this the best way:

a) Dilute shares over time so that the part of the dropped out partner
becomes smaller and smaller over time.

b) Somehow create a pool of undistributed shares and then vest for the
time of service.

I am not sure how the latter option can work as the entity itself cannot own
itself I assume. Another piece of information is that we are considering an
S-Corp just because we can deduct any operation expenditures from our income
tax.

Any suggestions on how this is normally structured?

--- Stefan

sbrun...@spamcop.net

415.218.6295 (cell)

A-level teams with B-level ideas succeed. B-level teams with A-level ideas fail. This course provides a comprehensive roadmap for building a standout team, teaching everything from hiring to structure, compensation, and culture.

Alan Peters VP Product and Technology at BusinessBlocks

January 18th, 2013

Share dilution sounds safer than shared delusion - especially when cliffs
are involved ;-)

On Thu, Jan 17, 2013 at 10:32 AM, Stefan Brunner <sbrun...@spamcop.net>wrote:

Stefan Brunner Cofunder and COO at TheTechMap, Inc

January 17th, 2013

Hi Stephen,

What are your co conclusions out of this discussion?

--- Stefan

On Jan 15, 2013, at 12:42 PM, Stephen Kowalski <skowal...@gmail.com> wrote:

Jean Barmash Engineering Program Manager at Tradeshift

January 17th, 2013

BTW, I am reading a great book right now that talks about how to structure
founder relationships. It\'s based on a lot of research.

Founder\'s Dillemas

http://www.amazon.com/Founders-Dilemmas-Anticipating-Foundation-Entre...

This is what Brad Feld had to say about it:

If you are a founder, or considering being a founder, a board member, or an
investor, buy The Founder�s
Dilemmas<http://www.amazon.com/exec/obidos/ASIN/0691149135/domofa-20>
right
now. One of your goals should be to do everything you can to maximize your
chance of success. This book will help a lot and you won�t regret the time
you invest in it.

http://www.feld.com/wp/archives/2012/05/book-the-founders-dilemmas.html

Jean

Jean Barmash
Co-Founder & Organizer, CTOSchool.org, an NYC meetup for startup technical
leaders

email: jean.barm...@gmail.com | skype jbarmash

On Thu, Jan 17, 2013 at 1:35 PM, Stefan Brunner <sbrun...@spamcop.net>wrote:

Eric Rogness Technical Product Manager

January 15th, 2013

I may be stating the obvious here, but a not-for-profit has no shareholders.

EricRogness.com(647) 297-7126

From: skowal...@gmail.com
Date: Tue, 15 Jan 2013 10:42:56 -0800
Subject: Re: [FD Members] Structering vesting plan for co-founders
To: sbrun...@spamcop.net
CC: founderdating@googlegroups.com; rica...@ontechies.com; johanbo...@gmail.com

I have this exact same question.

On Tue, Jan 15, 2013 at 10:23 AM, Stefan Brunner <sbrun...@spamcop.net> wrote:

Michael Brill Technology startup exec focused on AI-driven products

January 15th, 2013

I think it\'s important to note that there is a distinction between protecting the interests of employees who keep the faith and just being punitive. Saying FU to someone after they put in a year of their life into the earliest, highest-risk stage of a company just because it\'s no longer a fit is bad form in many cases. Put in a longer cliff or back-weight vesting to make it super-clear what the expectations are for commitment, but don\'t put in clawback provisions. In the end it doesn\'t really matter because you can always issue more equity to dilute people who leave.

On Jan 15, 2013, at 11:43 AM, Jai Jaisimha <j...@openmobilesolutions.com> wrote:

Michael Brill Technology startup exec focused on AI-driven products

January 18th, 2013

+1 on Mark\'s blog and his work on This Week in Venture Capital... both have been incredibly valuable (and if you want to feel better about yourself, just watch 5 minutes of this: http://thisweekin.com/thisweekin-venture-capital/this-week-in-venture...).

On Jan 18, 2013, at 8:09 AM, John Rodley <j...@rodley.com> wrote:

Stefan Brunner Cofunder and COO at TheTechMap, Inc

January 17th, 2013

Hi Michael,

Thank you for your reply.

So you are recommending essentially a strategy of cliff plus delusion.

--- Stefan

On Jan 15, 2013, at 1:52 PM, Michael Brill <mich...@botnik.com> wrote:

Stephen Kowalski Senior Technology Leader

January 15th, 2013

I have this exact same question.

On Tue, Jan 15, 2013 at 10:23 AM, Stefan Brunner <sbrun...@spamcop.net>wrote:

Stefan Brunner Cofunder and COO at TheTechMap, Inc

January 18th, 2013

Yeah, I am not sure.

The first question is whether you need a cofounder. There are very ego driven personalities which do not work well in teams. On the other hand, many individuals need emotional support. If you have started a few companies and grew them, perhaps you do not need a partner. Perhaps you have a franchise going and have it all figured out already and a network to provide the peripherals. Do not forget that it is lonely at the top. In the end, a personal decision.

Risk decreases progressively with age of the venture. So if you pay employees a stake instead of a salary or in addition to a salary, it is obviously higher so earlier. But a most young startups have a realistic market value of zero until they come to a certain point. Do I really want to do all the work as a second class co founder with little upside and the same high risk? You have choices: you can run a corporate career and make a very good income pretty stable and repeatable also in an entrepreneurial setting if you join the right organization.

The pitch: we really want you onboard but we really cannot pay you a salary and also do not want to give away much stake and yes, the upside, not sure if we will become an 9-figure IPO to yield you at least some low 7-figure return in a number of years (if things go well), and uhh, eh, we will bring in some angel on board and your meager stake will further dilute, does not really lure anybody but perhaps a college kid or a desperate individual out of work. I turned down those offers a couple of times.

You are joining in on a running funded business in a defined role, sure a couple of percent sound like a nice incentive on top of your comp package. And that just might be the risk premium for working with a startup in the first place. Otherwise, why?

--- Stefan

On Jan 18, 2013, at 10:09 AM, John Rodley <j...@rodley.com> wrote:

Michael Brill Technology startup exec focused on AI-driven products

January 15th, 2013

I\'m assuming it\'s non-profit with a small n and that you\'re not actually non-profit status.

I guess I don\'t understand the problem. Let\'s say everyone is on the same vesting schedule (let\'s say 4 years) and let\'s say you want some minimum commitment so you have a 6 month cliff. If the person leaves within 6 months, then 100% of the equity/options go to remaining 3. Even if they leave after 6 months, they\'ll only have ~ 4% after 4 years. Of course you can always issue additional equity later to further reduce.

...Michael

On Jan 15, 2013, at 10:48 AM, Eric Rogness <ericrogn...@hotmail.com> wrote: