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
Any suggestions on how this is normally structured?
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.
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
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.
Co-Founder & Organizer, CTOSchool.org, an NYC meetup for startup technical
email: jean.barm...@gmail.com | skype jbarmash
On Thu, Jan 17, 2013 at 1:35 PM, Stefan Brunner <sbrun...@spamcop.net>wrote:
I may be stating the obvious here, but a not-for-profit has no shareholders.
Date: Tue, 15 Jan 2013 10:42:56 -0800
Subject: Re: [FD Members] Structering vesting plan for co-founders
CC: firstname.lastname@example.org; rica...@ontechies.com; johanbo...@gmail.com
I have this exact same question.
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:
+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:
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?
On Jan 18, 2013, at 10:09 AM, John Rodley <j...@rodley.com> wrote:
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.
On Jan 15, 2013, at 10:48 AM, Eric Rogness <ericrogn...@hotmail.com> wrote: