7 ms·

Didn't even realize founder's equity vested. I thought since they created the company, they owned it since day 1.

• sverhagen 8y ago
  It seems to make most sense if there's multiple founders, and the risk that they leave at different times.
• markbnj 8y ago
  It doesn't really, unless the founder has signed a stockholder's agreement with other founders or investors specifying a vesting period. Under normal circumstances a founder or founders form a corp, put some cash/equity in, sign a stockholders agreement specifying who owns how much, and from that moment the equity is wholly owned by the signatories to that agreement. Other agreements may come into play as the company seeks additional investment, etc., but I can tell you that at least 20 years ago when I did a startup + angel round + series A + B nobody at any time suggested that the equity I'd worked for the first four years should somehow be clawed back and then vested, and the conversation would not have gone well if they had.
  • x0x0 8y ago
    It's all open to negotiation. Founders outright own the company in the period between creating the C Corp through taking safes, if any, until taking a priced round. Depending on the progress at that point, you may or may not get asked to revest. In our case, we negotiated with our VC that our vesting period started on incorporation. However, we were funded within 6 months of incorporation. If that period were to be years, it would be extremely reasonable for a VC to demand revesting, and to the benefit of multiple founders IMO.
• tptacek 8y ago
  No. All operator equity vests. Any potential partner who demands unvested equity is one you should avoid. Vesting protects cofounders as much as it protects money investors.
  • SilasX 8y ago
    Kinda like the Cruise fiasco? [1] In that case, the cofounders represented, very early on, that they were equal partners with no vesting schedule, which was a major headache when GM came to buy them out, and the cofounder that left early got to show legit claim to a huge stake. [1] Earlier thread on Cruise where I defended the position that a founder deserved full equity (modulo later dilution) because his cofounder didn’t think to establish a vesting schedule or, failing that, to buy him out: https://news.ycombinator.com/item?id=11741652 https://news.ycombinator.com/item?id=11741652
    • tptacek 8y ago
      Spolsky: Now that we have a fair system set out, there is one important principle. You must have vesting. Preferably 4 or 5 years. Nobody earns their shares until they've stayed with the company for a year. A good vesting schedule is 25% in the first year, 2% each additional month. Otherwise your co-founder is going to quit after three weeks and show up, 7 years later, claiming he owns 25% of the company. It never makes sense to give anyone equity without vesting. This is an extremely common mistake and it's terrible when it happens. You have these companies where 3 cofounders have been working day and night for five years, and then you discover there's some jerk that quit after two weeks and he still thinks he owns 25% of the company for his two weeks of work. I made this mistake and will never make it again.
      • emmelaich 8y ago
        Full answer that someone saved as a Gist: https://gist.github.com/isaacsanders/1653078 https://gist.github.com/isaacsanders/1653078
  • Alex3917 8y ago
    Just to emphasize this, your equity should be vesting even if you're the single founder of a bootstrapped company. There are often weird cases in startups where you need to negotiate against yourself, and it's going to be hard to convince a disinterested third party that you're acting in an equitable way unless you're putting a framework in place from the beginning to value the sweat equity you're contributing. Having a vesting schedule will give you leverage in the future, even if it doesn't seem like it's doing anything at the time.
• timhaines 8y ago
  It's a helpful thing to put in place if you have more than one founder. It makes it clear to everyone ahead of time what happens if one of the founders leaves.
• bredren 8y ago
  What if a cofounder quits on day 2?!
  • BadassFractal 8y ago
    Exactly. Good luck explaining to your investors for the next 10-15 years why 50% of the company's value is not accessible to you, them, your employees, or one day the public markets.
    • Xcelerate 8y ago
      Could you not dissolve the company and then start a new one that does the same thing with different founders? Or are there legal issues with founding two companies that do really similar things?
      • GeneralMayhem 8y ago
        Dissolving the company would require liquidating its value to return it to the existing shareholders, so the guy that left 2 weeks in is getting his 25% either way (he is, after all, a partial owner). If the company is really worthless, you could maybe claim that the company has zero present value and then immediately start another one, but that would still almost certainly constitute fraud.
• BadassFractal 8y ago
  Not only is it typically not immediately vested for founders, but it's not totally uncommon for future rounds to "unvest" founders. E.g. let's say you raise your A after 4 years, the terms of the round might require that you unvest 2 years so that the investors have you locked in for longer, to avoid the issue discussed in the original post.
• patio11 8y ago
  Fun fact: nobody owns a C corporation until the company actually issues shares, which is a good thing to not forget to do. (Occasionally discovered by serious professionals during due diligence, at which point fixing it will cost, at the minimum, an unfun professional services bill(s).) (The instrument which issues shares to Cofounder X will, in most cases in Silicon Valley, condition it on vesting via a repurchase right or similar mechanism.)
  • uiri 8y ago
    Is this the kind of thing which has tax consequences? Interesting thought experiment for a US expat setting up a local corporation: at what step in the process does FATCA actually come into play?
    • kgwgk 8y ago
      It’s the kind of thing that has to be done in the first board meeting. Otherwise the company would be operating outside the law.
    • gammateam 8y ago
      FATCA comes into play when you have a bank account and primarily when it has over $10,000 in it If you dont have a BANK ACCOUNT and with national currency or securities in it, then there is no FATCA Hm if that wasnt clear, stablecoins/crypto are exempt. Several stablecoins are FDIC insured according to the issuer. Form a US company just to access the international banking system and put a title on rent and pay for a github account. Let your international company just use crypto.
      • raverbashing 8y ago
        (a Foreign bank account, one might add)
      • uiri 8y ago
        I really hope you haven't been neglecting to fill out form 5471 and form 8938 based on a misunderstanding of reporting requirements. FBAR requirements are separate and distinct from FATCA.
• nathan_f77 8y ago
  I think that's normally the case if you have cofounders or if you take investment. I started a bootstrapped company without any cofounders or employees, so I didn't set up any vesting schedule. I just own 100% of the company.
• sbilstein 8y ago
  It was a surprise to my cofounder and I too when we started but our attorney told us investors prefer it. Makes sense that I wouldn’t own half a business if I quit in a week. We signed the papers and don’t really think about it, especially since we’re partners as well it would put investors at ease if we had some legal binding to the business long term