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I've co-founded four companies with seven distinct co-founders, raised angel and venture funding, and had two very successful exits. I've never had vesting for

I've co-founded four companies with seven distinct co-founders, raised angel and venture funding, and had two very successful exits. I've never had vesting for any founder at any stage, and never had cause to wish for it in hindsight. There are advantages and disadvantages to founder vesting and they are situational. Recommending it as a default may very well be good zeroth order advice for beginners, but your position is way too strong. A start on thinking about why it might not always be the best way to keep a team together is to look up the "israeli day care study".

tptacek 8y ago
I think you got lucky. That's great, and I'm happy for you. We could bicker about the odds. Maybe it's 60/40 in favor of you getting away without vesting? Maybe even 70/30? The first company I ever worked for, which also had a successful exit, didn't do vesting. It never occurred to any of us to be ruthless about it, and it happened that nobody left early anyways: they had gotten the team exactly right. Vesting wouldn't have made a difference. Maybe that's you, too? Me, I've been working for small companies ("startups") since 1995. I've been on the founding teams of 5 of them. In all but 1 of them, key members of the team left at some point. In each of those situations, lack of vesting would have meant they left with a full share of the company, leaving everyone else on the team to work --- possibly for years --- for that person's equity. In one case, that's exactly what happened, only we didn't know it until the end. That's a mistake I will never make again. These are, I think, the very worst kinds of mistakes startup founders can make. The kind that don't really impact the company on a day-to-day basis and that you won't notice, until you're actually successful and finally at or near accounting for that success, and you realize you did something stupid that tolls the whole fucking enterprise. You might not be able to do anything to mitigate, you can't even bail from the company and do something different, you're never getting the time back, the damage is done. Vesting isn't the only mistake like this, and it's not the worst, but it's bad. And for what? Does it somehow make you feel better not to vest? I don't get it. (I don't pretend to understand Alex's logic about vesting as a solo founder but did not think hard about it either).
- voidmain 8y ago
  Obviously, yes, if you keep going back to the well, eventually someone will betray you. And vesting will make a founder breakup easier (if the company can survive without the founder, and if it hasn't already been long enough that they are fully vested, and if you couldn't have come to a negotiated agreement). And that's a good reason to do it. Another good reason is if your cofounders are already pretty mercenary and the vesting incentive actually makes a breakup less likely. There are good reasons not to do it too. If you work with good and honorable people, who have kept their promises to other people in their life, and who have (incredibly valuable) reputations as honest people to protect, they are pretty likely to keep their promises to you too. (Don't forget to actually discuss these promises!) Unless you unnecessarily move the decision to leave into the category of "rational economic decision" by putting a price on it. (And four years later, when that price has decreased to zero?) Another reason is that you might trust your cofounders more than your possible future investors (they have reputational incentives too, but you don't know them yet!), and prefer not to give the latter a possible avenue to steal the company from some or all of you. Sometimes there can be tax tradeoffs, depending on what else you are doing. As I said, it might be a good choice to have vesting in many or even most circumstances. Everyone should carefully consider it. But "always no matter what" is not good advice.
  - tptacek 8y ago
    "Good and honorable" has nothing at all to do with it. When you run a company without vesting, you are explicitly telling the founders they have an unencumbered right to their share of the company practically without regard to when they leave. When they come back, 10 years later, what you have isn't a "betrayal", but rather a mutually-motivated disagreement, and one in which one side has a great deal of legal leverage. It's a nightmare scenario that has nothing to do with moral judgements, and exactly the scenario vesting is designed to eliminate. The idea of starting a company that is predicated on not surviving a founder departure is weird to me.
    - voidmain 8y ago
      If you think that what the corporate documents say is the only or most important possible form of commitment between founders, we probably have very different philosophies about business and probably life. To give a related example, I've sold a company to an acquirer for whom the deal was extremely material, and for whom I was a very key employee, who tied me down for two years with nothing more or less than a promise and a handshake. They were smart: I was far less likely to leave during that time than I was after another acquisition where I had big golden handcuffs. (Also, I have trouble understanding the "10 years later" scenario. Is the assumption that there's a founder breakup and... everyone just forgets about it and goes about their business? THAT sounds nuts.)
zbruhnke 8y ago
Here, I’ll be the first to provide a perspective from the other “other” side of this argument. I am a founder who once had a vesting schedule with a cliff (one year). I built the first version of a venture backed company as the CTO, we had backing from investors you’ve heard of. The product went live and was even used by some people. Eventually I ended up in a place where it was clear to me I disagreed with the direction of the business and the CEO leading it. I for one am glad there was a cliff. Because I left and when I did my co-founders continued to work on that business. As far as I know they’re still at it. That was over six years ago. The code I wrote is likely of VERY little value in the grand scheme of things. The value I added in thoughts, ideas, advice etc. is probably about as valuable as people my co-founders have had several dinners with over the years at this point. If I had walked away with 1/3 of the equity that would have put the other two co-founders in a horrible situation and would have been completely unfair of me to do. The cliff did its job. You vest to protect all parties and because it’s just the right thing to do. Take it from someone who walked off the “cliff”. I’ve started multiple companies since then. Each has had a vesting schedule and a cliff for all founders.
- linkregister 8y ago
  Writing the MVP for that company's app was invaluable at the time. Without a working app, your cofounders would not own their company. Leaving a startup is a personal decision that can be very rational; I don't criticize your decision to leave. I am critical of your understating your importance to the business. I think that 1/3 of the company would have been far too much, but 0% seems far too low.
- voidmain 8y ago
  Yes, if you want to be able to walk away with a clean conscience, you should definitely have vesting. That's not what everyone is going for.
  - tptacek 8y ago
    Can you help me understand why you would want a company structure that was designed not to survive the departure of a founder?
deleted 8y ago
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tptacek 8y ago

I think you got lucky. That's great, and I'm happy for you. We could bicker about the odds. Maybe it's 60/40 in favor of you getting away without vesting? Maybe even 70/30? The first company I ever worked for, which also had a successful exit, didn't do vesting. It never occurred to any of us to be ruthless about it, and it happened that nobody left early anyways: they had gotten the team exactly right. Vesting wouldn't have made a difference. Maybe that's you, too? Me, I've been working for small companies ("startups") since 1995. I've been on the founding teams of 5 of them. In all but 1 of them, key members of the team left at some point. In each of those situations, lack of vesting would have meant they left with a full share of the company, leaving everyone else on the team to work --- possibly for years --- for that person's equity. In one case, that's exactly what happened, only we didn't know it until the end. That's a mistake I will never make again. These are, I think, the very worst kinds of mistakes startup founders can make. The kind that don't really impact the company on a day-to-day basis and that you won't notice, until you're actually successful and finally at or near accounting for that success, and you realize you did something stupid that tolls the whole fucking enterprise. You might not be able to do anything to mitigate, you can't even bail from the company and do something different, you're never getting the time back, the damage is done. Vesting isn't the only mistake like this, and it's not the worst, but it's bad. And for what? Does it somehow make you feel better not to vest? I don't get it. (I don't pretend to understand Alex's logic about vesting as a solo founder but did not think hard about it either).

voidmain 8y ago
Obviously, yes, if you keep going back to the well, eventually someone will betray you. And vesting will make a founder breakup easier (if the company can survive without the founder, and if it hasn't already been long enough that they are fully vested, and if you couldn't have come to a negotiated agreement). And that's a good reason to do it. Another good reason is if your cofounders are already pretty mercenary and the vesting incentive actually makes a breakup less likely. There are good reasons not to do it too. If you work with good and honorable people, who have kept their promises to other people in their life, and who have (incredibly valuable) reputations as honest people to protect, they are pretty likely to keep their promises to you too. (Don't forget to actually discuss these promises!) Unless you unnecessarily move the decision to leave into the category of "rational economic decision" by putting a price on it. (And four years later, when that price has decreased to zero?) Another reason is that you might trust your cofounders more than your possible future investors (they have reputational incentives too, but you don't know them yet!), and prefer not to give the latter a possible avenue to steal the company from some or all of you. Sometimes there can be tax tradeoffs, depending on what else you are doing. As I said, it might be a good choice to have vesting in many or even most circumstances. Everyone should carefully consider it. But "always no matter what" is not good advice.
- tptacek 8y ago
  "Good and honorable" has nothing at all to do with it. When you run a company without vesting, you are explicitly telling the founders they have an unencumbered right to their share of the company practically without regard to when they leave. When they come back, 10 years later, what you have isn't a "betrayal", but rather a mutually-motivated disagreement, and one in which one side has a great deal of legal leverage. It's a nightmare scenario that has nothing to do with moral judgements, and exactly the scenario vesting is designed to eliminate. The idea of starting a company that is predicated on not surviving a founder departure is weird to me.
  - voidmain 8y ago
    If you think that what the corporate documents say is the only or most important possible form of commitment between founders, we probably have very different philosophies about business and probably life. To give a related example, I've sold a company to an acquirer for whom the deal was extremely material, and for whom I was a very key employee, who tied me down for two years with nothing more or less than a promise and a handshake. They were smart: I was far less likely to leave during that time than I was after another acquisition where I had big golden handcuffs. (Also, I have trouble understanding the "10 years later" scenario. Is the assumption that there's a founder breakup and... everyone just forgets about it and goes about their business? THAT sounds nuts.)

zbruhnke 8y ago

Here, I’ll be the first to provide a perspective from the other “other” side of this argument. I am a founder who once had a vesting schedule with a cliff (one year). I built the first version of a venture backed company as the CTO, we had backing from investors you’ve heard of. The product went live and was even used by some people. Eventually I ended up in a place where it was clear to me I disagreed with the direction of the business and the CEO leading it. I for one am glad there was a cliff. Because I left and when I did my co-founders continued to work on that business. As far as I know they’re still at it. That was over six years ago. The code I wrote is likely of VERY little value in the grand scheme of things. The value I added in thoughts, ideas, advice etc. is probably about as valuable as people my co-founders have had several dinners with over the years at this point. If I had walked away with 1/3 of the equity that would have put the other two co-founders in a horrible situation and would have been completely unfair of me to do. The cliff did its job. You vest to protect all parties and because it’s just the right thing to do. Take it from someone who walked off the “cliff”. I’ve started multiple companies since then. Each has had a vesting schedule and a cliff for all founders.

linkregister 8y ago
Writing the MVP for that company's app was invaluable at the time. Without a working app, your cofounders would not own their company. Leaving a startup is a personal decision that can be very rational; I don't criticize your decision to leave. I am critical of your understating your importance to the business. I think that 1/3 of the company would have been far too much, but 0% seems far too low.
voidmain 8y ago
Yes, if you want to be able to walk away with a clean conscience, you should definitely have vesting. That's not what everyone is going for.
- tptacek 8y ago
  Can you help me understand why you would want a company structure that was designed not to survive the departure of a founder?

deleted 8y ago

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