3 ms·
1. The standard vesting arrangement is four years with a one-year cliff. This means 25% of your stock (as a founder) vests at the end of the first year, and th
by jfarmer 15y ago
1. The standard vesting arrangement is four years with a one-year cliff. This means 25% of your stock (as a founder) vests at the end of the first year, and the remainder vests month-to-month for the next three. In your scenario it sounds like the founders have been at it for two years before their first financing.
2. Why does the VC even have the right to fire the founders or CEO? The board has that right, and presumably the VC is on that board, but their rights are defined in the financing agreement. Control is an important negotiating point when raising a round of financing.
3. Why would a VC want to invest in a company where the founders have completely vested? What's to stop them from running off with the money, so to speak?
4. That said, I've seen incorporation documents where some small portion of the founders' stock is vested immediately (maybe 5%), and the remainder follows the standard four-year vesting, one-year cliff arrangement. This makes it a little harder to raise money and the VCs might insist on changing the vesting schedule as part of the financing agreement. Generally it's just easier to have everyone on the same vesting schedule, that way nobody can object.
- adrianscott 15y ago1. That's the standard vesting arrangement for non-founders. I have trouble imagining a cliff for founders.
- jfarmer 15y agoIt's normal in my experience. A cliff of some kind has been part of every incorporation agreement I've seen or signed. http://startuplawyer.com/incorporation/why-your-startups-founders-stock-should-vest-over-time http://startuplawyer.com/incorporation/why-your-startups-fou... http://www.startupcompanylawyer.com/2007/07/19/what-should-the-vesting-terms-of-founder-stock-be-before-a-venture-financing/ http://www.startupcompanylawyer.com/2007/07/19/what-should-t... Moreover, if I were working with a co-founder, I would (and have) insist we vest on that schedule, and certainly not monthly from day 1. There are a few reasons: 1. I don't want my co-founder leave before a year and having a chunk of the company. Likewise, I want to do right by my co-founder. If I leave before a year is up, it wouldn't be right for me to own a chunk of the company. 2. It's inequitable for the founders to have different vesting schedules than employees. What happens if someone joins the team pre-financing? If they get the same terms as the founders, then what about an early employee vs. a later employee? It makes for a weird, political situation. 3. It makes it easier to raise money. If you're vesting on the same terms as your investors they have no basis to negotiate over that term; they'll just check the box and move on. It passes the "blink test." These are just my experiences, so YMMV.