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Not to diminish the importance of trusting founders, but what are some approaches to remove the need for trust in solving for this? As a fan of the saying "tru

Not to diminish the importance of trusting founders, but what are some approaches to remove the need for trust in solving for this? As a fan of the saying "trust but verify" and its derivations, while I feel trust is important, I hate leaving such critical things up to trust at the end of the day.

brianwawok 11y ago
One interesting thing to look at is the possible losses via a little game theory. No Cliff - Risk is that one founder sucks for a year and then takes some equity (2, 3%? How much vested in the first year anyway). If company goes for billions, you make a few million less - basically a rounding error. Cliff - Risk is the controlling founder fires the non-controlling founder on day 364, but company still goes on to succeed. Loss is the non-controlling founder loses a year of his life where he worked for equity that was stripped from him.
- tptacek 11y ago
  First, 2% is a lot. It's more than any senior employee is likely to get after year 1-2. Second, if you're doing equal split and you have three cofounders, without a cliff you're talking about someone who might walk away with 8% of the company without even having spent a year there. CEOs of companies routinely get significantly less than 8% of the company. Finally, the "no cliff" risk happens all the time. People leaving after less than a year is practically the default setting. I'm sorry, but as often as malfeasance among founders happens (the fact that it's newsworthy when it does is suggestive), it's not the default.
  - s73v3r 11y ago
    I think the outcome where someone gets fired just before the vesting period is far, far, far worse and more damaging that someone getting a small chunk of the company for not doing anything.
    - tptacek 11y ago
      You're answering a question nobody posed. The question is, what's more likely to happen: a cofounder leaving in less than a year, or a cofounder being deliberately screwed by all their cofounders and fired ruthlessly just before the cliff. The answer is: the former scenario is far more likely than the latter.
      - s73v3r 11y ago
        I don't think it matters which one is more likely to happen, rather, which one would be more devastating. And quite frankly, in the case where a cofounder left in less than a year, nobody else has really lost a lot.

brianwawok 11y ago

One interesting thing to look at is the possible losses via a little game theory. No Cliff - Risk is that one founder sucks for a year and then takes some equity (2, 3%? How much vested in the first year anyway). If company goes for billions, you make a few million less - basically a rounding error. Cliff - Risk is the controlling founder fires the non-controlling founder on day 364, but company still goes on to succeed. Loss is the non-controlling founder loses a year of his life where he worked for equity that was stripped from him.

tptacek 11y ago
First, 2% is a lot. It's more than any senior employee is likely to get after year 1-2. Second, if you're doing equal split and you have three cofounders, without a cliff you're talking about someone who might walk away with 8% of the company without even having spent a year there. CEOs of companies routinely get significantly less than 8% of the company. Finally, the "no cliff" risk happens all the time. People leaving after less than a year is practically the default setting. I'm sorry, but as often as malfeasance among founders happens (the fact that it's newsworthy when it does is suggestive), it's not the default.
- s73v3r 11y ago
  I think the outcome where someone gets fired just before the vesting period is far, far, far worse and more damaging that someone getting a small chunk of the company for not doing anything.
  - tptacek 11y ago
    You're answering a question nobody posed. The question is, what's more likely to happen: a cofounder leaving in less than a year, or a cofounder being deliberately screwed by all their cofounders and fired ruthlessly just before the cliff. The answer is: the former scenario is far more likely than the latter.
    - s73v3r 11y ago
      I don't think it matters which one is more likely to happen, rather, which one would be more devastating. And quite frankly, in the case where a cofounder left in less than a year, nobody else has really lost a lot.