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I'm not sure that that's really true. Investors don't vest because they put in capital which is immediately available. Similarly, those contributing capital (ei

by uiri 12y ago

I'm not sure that that's really true. Investors don't vest because they put in capital which is immediately available. Similarly, those contributing capital (either in the form of supplies (e.g. a drafting table) or cash) should get their shares right away. Those who are accepting equity for labour should vest because otherwise they may walk away before all of the promised labour materializes. I think that those who were paid in WOTC stock (in addition to or in lieu of cash) received their stock in paycheque-sized increments. Which is fair because the amount of stock they received is a fair trade for the labour that they put into the company.

sqrt17 12y ago
Which begs the question, why would you deliberately build a cliff into the vesting process? Why not say, 20000$/yr (or whatever arbitrary amount) at then-current valuation? As for institutional investment, this would create incentives for the founders (or other equity holders) to exaggerate the valuation of the company. On a different note, this kind of vesting would mean more equity for people who worked for the company while it was growing slowly (and who took on more risks - that's why you give them equity and not hard cash) before seeing exponential growth, and no equity growth for people who joined after the company had reached a stable state. The next point is, what's whith people who want to disinvest from their position? This is both the case for investors after a company has reached a certain size (e.g. Zappos before they were acquired by Amazon), but it will also be the case when people who get partly paid in equity want out of their position. Vesting cliffs unilaterally benefit the current equity holders, because it creates a skewed incentive structure where you either should leave at the start or stick it out until the vesting cliff. (And, that's what it was with Microsoft in the 90s/2000s: many people stayed on exactly for the time it took for their equity to vest).

by uiri 12y ago

sqrt17 12y ago

Which begs the question, why would you deliberately build a cliff into the vesting process? Why not say, 20000$/yr (or whatever arbitrary amount) at then-current valuation? As for institutional investment, this would create incentives for the founders (or other equity holders) to exaggerate the valuation of the company. On a different note, this kind of vesting would mean more equity for people who worked for the company while it was growing slowly (and who took on more risks - that's why you give them equity and not hard cash) before seeing exponential growth, and no equity growth for people who joined after the company had reached a stable state. The next point is, what's whith people who want to disinvest from their position? This is both the case for investors after a company has reached a certain size (e.g. Zappos before they were acquired by Amazon), but it will also be the case when people who get partly paid in equity want out of their position. Vesting cliffs unilaterally benefit the current equity holders, because it creates a skewed incentive structure where you either should leave at the start or stick it out until the vesting cliff. (And, that's what it was with Microsoft in the 90s/2000s: many people stayed on exactly for the time it took for their equity to vest).