

Note to Founders: Have Vesting - jcwentz
http://www.foundersatwork.com/1/post/2007/07/note-to-founders-have-vesting.html

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jmtame
I think vesting is a good idea for the founders (it's in their best interest),
but I think if you're asking for someone to commit to such a long time period
(ie 4-5 years), then it better be really good equity. Even better than if it
were just offered "up front." There are also opportunity costs to consider, so
your early employees or co-founders could be off starting their own companies
with a lot more equity. So it's probably going to vary by each person, but in
my experience, the vested equity has to be really good or I'm not interested.

I've been in startups where the vested equity was really low, and I left (I
was employee #1). I've also talked with numerous people who thought about
joining the same startup, and refused due to a number of reasons, but low
equity was mentioned as one of the first reasons.

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yubrew
How about reverse vesting instead of normal vesting? This may alleviate some
of the tax consequences of someone that wants to leave early.

<http://www.joelonsoftware.com/items/2007/07/17.html>

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nostrademons
I'm curious - how does this compare with the buyout agreement detailed here:
<http://news.ycombinator.com/item?id=35192>. Do you need to have both vesting
and buyout provisions, or is vesting preferential to buyouts, or do you not
need vesting with a sane buyout policy?

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myoung8
Would it be possible to "open-source" an operating agreement so that we can
actually work these things into our own?

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pg
We've thought of open sourcing some of YC's documents. The reason we haven't
so far is that they're still getting tweaked. Which implies the earlier
versions had holes. And the prospect of having other people use legal
documents with holes is a lot more alarming than other people using software
with bugs. I.e. we might get sued-- if not by benevolent founders, then by
their evil investors.

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neilc
Isn't this analogous to using open source software in a setting where bugs in
the software might result in financial losses -- i.e. is there not a "NO
WARRANTY, USE AT YOUR OWN RISK" clause that you can attach that is strong
enough to shield you from any potential liability?

If you can get the legal angle sorted out, I'd personally find these sorts of
documents useful. As for waiting for a version without "holes", that sounds
like waiting until the software is perfect before shipping it :) It's not like
a theoretically "bulletproof" set of templates would stop anyone from suing
you anyway, if some company tanks and the investors are looking around
desperately for someone to blame...

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euccastro
I think that disclaimer will be there anyway, so YC's concerns aren't about
getting sued but about causing more harm than good.

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marrone
This is a great post. Something we were just considering in our own startup.
Since we are just starting out it is easy for us to just brush it aside with
our optimism, but really anything can happen, so after reading this post I am
sold on doing it.

A side note, the book Founders At Work is an awesome read!

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ivankirigin
Who owns the stock while it vests, the company? As far as percentage ownership
for decision making (if that even matters -- I don't now), how does that work?

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e40
It's no different than with fully vested options that have not been purchased:
the company. I think you are confusing vesting with purchasing options. First,
you get the options. Then, you vest into them. Finally, you purchase the
shares. Until you purchase, the company still has them.

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gibsonf1
Thank you Jessica - a very powerful argument for biting the financial bullet
and using real lawyers when setting up a startup _with stock vesting_. I
hadn't actually thought about vesting as an issue before for the founders (as
my partner and I are decade long friends)

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portLAN
This is one of those ideas that sounds good when you apply it to everyone
else.

Personally I want to own my shares immediately. You never know what's going to
happen and what technicalities will let VCs/the board/others fire you before
you're vested.

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drusenko
that's what the double trigger is for

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portLAN
I still wouldn't trust the small print not to taketh away. Typically it
involves something like accelerated vesting as long as you're not fired "for
cause"; but who's to say what kind of charges might be trumped up to get
around it? In which case, you'd want a clause covering departure for _any_
reason -- but then you might as well be vested from the start anyway.

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startupper
Excellent point. On a related note how does one legally manage vesting in the
case of a merger between two startups? I'm considering a merger with another
founder. My startup has been around for a little longer. Any thoughts?

~~~
e40
Bottom line you have to assign a value to each entity, then it's a trivial
matter equalize the shares for all the shareholders.

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menloparkbum
My cynical side remembers doing all the grunt work for 18 months at my first
startup and then getting sacked to free up my unvested stock for the hopeless
flotilla of "key hires" who proceeded to sink the company.

