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Our series A investors wanted vesting and we said no. They were cool with it. Vesting for founders is insane. Never accept it. Vesting for execs is mandatory an

Our series A investors wanted vesting and we said no. They were cool with it. Vesting for founders is insane. Never accept it. Vesting for execs is mandatory and has saved me once already, ironically because our investors demanded it. Once again I'm surprised at how very very few founders have a thorough knowledge of what they're signing up for and how to get what they want. It's your company. Act like it. You don't need permission and nothing is "standard". Also think hard before you get into bed with A level VC's and angels and make sure you are on your A game because the worlds most skilled investors come with a heavy premium. If you're bringing real value, there's nothing wrong with saying no.

jpdoctor 15y ago
> Our series A investors wanted vesting and we said no. It's really a noop on their part. They know full well that if a founder ever leaves the company they can recover the ownership by diluting the bejesus out of him after he's gone (and bonus: everyone else who has already left is also diluted to near-zero). Vesting just saves them the energy they'd have to exert on the backend.
- stdbrouw 15y ago
  Stock and voting / vetoing rights usually go hand in hand, so it depends on company structure and how well the founders protected themselves against such events.
patio11 15y ago
Vesting for founders is insane. Never accept it. This depends a bit on the maturity of the company. For example, at the seed stage, where the founders may only have known each other for 3 months of their lives, very credible people are going to tell you that they can name dozens of reasons why you should have vesting. If money first comes into the company around month 5 and you have a seed round closed around month 8, there's quite a window where acrimonious breakups can happen. In the event of an acrimonious breakup, fast forward four years. In the event you manage to pull the company back from the brink, do you want someone from two lifetimes ago in startup years a) owning ~1/4 of your company and b) looking like Huge Unknown Risk Factor every time you raise a new round or make similarly consequential decisions? That's why smart people who have seen bad breakups before are going to suggest vesting and it won't really be a suggestion. Now, on the flipside, if I hypothetically brought on my best friend to work on AR and took investing at the two year mark, any conversation beginning with "You should really give all your shares back" would be pretty darn brief.
tptacek 15y ago
Wow, disagree. Team of 3 founders, no vesting, one walks in month 6, the others stay for 4 years, build company; in the end, all three are compensated the same way. That's a terrible way to allocate equity. Resetting the vesting clock to zero at funding sounds insane, but if you need the money, the people offering it do set the terms. I know a lot of people who've gotten institutional VC rounds for companies; I believe all of them vested. You're right that it probably can't hurt to push back.
- cperciva 15y ago
  I think the point you're trying to get at here is the same as what I was saying: Vesting should occur over the same time period as the vestees are making a significant contribution to the company. The situation when a company is founded (founders will be building it in the future, and vesting is appropriate) is completely different from the situation where a profitable and rapidly-growing company takes investment (founders have already made a large contribution, and vesting is either inappropriate or should be limited to a relatively small proportion of their shares).
  - tptacek 15y ago
    That is part of my point. The other half of my point is that in some transactions, "should" and "fair" don't matter. Either the terms make sense for them, or they don't. Terms that make sense aren't fair? Can't reasonably accept them? Ok. No deal. VCs are professional deal makers. They can't code, they can't round HTML corners, they can't even write copy. Their one skillset is optimizing the problem of allocating other people's money in small companies for optimal return. Parent commenter is right in that you should push back and negotiate as hard as you can. If you're a better bet than any of the 10 other prospects they're prepared to fund instead of you, you might win. Otherwise, nope. But there's no sense getting angry about it; nobody can reasonably say that a venture capitalist is obligated to fund anyone, on any terms. The sole moral obligation of a VC is to obtain the maximum return for their limited partners. Some of them bend over backwards to try to make things better for company "operators"; in a very reasonable way of looking at things, the VCs who do that may be the ones who are acting unethically.

jpdoctor 15y ago

> Our series A investors wanted vesting and we said no. It's really a noop on their part. They know full well that if a founder ever leaves the company they can recover the ownership by diluting the bejesus out of him after he's gone (and bonus: everyone else who has already left is also diluted to near-zero). Vesting just saves them the energy they'd have to exert on the backend.

stdbrouw 15y ago
Stock and voting / vetoing rights usually go hand in hand, so it depends on company structure and how well the founders protected themselves against such events.

patio11 15y ago

Vesting for founders is insane. Never accept it. This depends a bit on the maturity of the company. For example, at the seed stage, where the founders may only have known each other for 3 months of their lives, very credible people are going to tell you that they can name dozens of reasons why you should have vesting. If money first comes into the company around month 5 and you have a seed round closed around month 8, there's quite a window where acrimonious breakups can happen. In the event of an acrimonious breakup, fast forward four years. In the event you manage to pull the company back from the brink, do you want someone from two lifetimes ago in startup years a) owning ~1/4 of your company and b) looking like Huge Unknown Risk Factor every time you raise a new round or make similarly consequential decisions? That's why smart people who have seen bad breakups before are going to suggest vesting and it won't really be a suggestion. Now, on the flipside, if I hypothetically brought on my best friend to work on AR and took investing at the two year mark, any conversation beginning with "You should really give all your shares back" would be pretty darn brief.

tptacek 15y ago

Wow, disagree. Team of 3 founders, no vesting, one walks in month 6, the others stay for 4 years, build company; in the end, all three are compensated the same way. That's a terrible way to allocate equity. Resetting the vesting clock to zero at funding sounds insane, but if you need the money, the people offering it do set the terms. I know a lot of people who've gotten institutional VC rounds for companies; I believe all of them vested. You're right that it probably can't hurt to push back.

cperciva 15y ago
I think the point you're trying to get at here is the same as what I was saying: Vesting should occur over the same time period as the vestees are making a significant contribution to the company. The situation when a company is founded (founders will be building it in the future, and vesting is appropriate) is completely different from the situation where a profitable and rapidly-growing company takes investment (founders have already made a large contribution, and vesting is either inappropriate or should be limited to a relatively small proportion of their shares).
- tptacek 15y ago
  That is part of my point. The other half of my point is that in some transactions, "should" and "fair" don't matter. Either the terms make sense for them, or they don't. Terms that make sense aren't fair? Can't reasonably accept them? Ok. No deal. VCs are professional deal makers. They can't code, they can't round HTML corners, they can't even write copy. Their one skillset is optimizing the problem of allocating other people's money in small companies for optimal return. Parent commenter is right in that you should push back and negotiate as hard as you can. If you're a better bet than any of the 10 other prospects they're prepared to fund instead of you, you might win. Otherwise, nope. But there's no sense getting angry about it; nobody can reasonably say that a venture capitalist is obligated to fund anyone, on any terms. The sole moral obligation of a VC is to obtain the maximum return for their limited partners. Some of them bend over backwards to try to make things better for company "operators"; in a very reasonable way of looking at things, the VCs who do that may be the ones who are acting unethically.