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I don’t know the exact specifics, but the notion of co-founder vesting schedules exist today. This provides a simpler pre-agreed upon way to handle that kind of situation. If I recall correctly Micro-Soft wasn’t even a properly incorporated entity for the DOS deal making things like a founder needing to stop having an execution role for health reasons hard to deal with.

And that is likely to help you not at all if another party with controlling interest decides to try to screw you. See the histories of Facebook and Zynga for a couple of more high profile and recent examples. Back when Microsoft was founded, I don't think there really was even the notion of vesting back the shares in your own company... you were either a partner in a partnership or a shareholder in a corporation. I'm pretty sure it was VC's who later came up with the concept of earning back ownership in one's own company.

It's not clear that typical co-founder vesting schedules are really capable of handling this sort of event: a co-founder develops a major disease that limits their ability to work but does not halt it completely.

In most instances like this the co-founder is likely to continue vesting as normal. Whether all parties are happy with this arrangement or not is likely to vary significantly from case to case.

Yeah, some kind of disability vesting would make sense.

That's an interesting way of looking at it. I wonder if you're right in looking at it that way.

i.e. if one co-founder cannot work as much as the other, should there be a change in compensation?

I think there's room for both compassion and contingency in compensation.

You can make sure that "your people" (operating from the mindset of corporate feudalism) are taken care of, that if they die prematurely from illness or accident their families are taken care of, and that if they are rendered simply unable to work they and their families are not worse off than in the worst case, without giving someone multi-digit ownership of the company.

It's something to consider when you start drawing up paperwork for your own startup, grisly as that may seem. What happens when one of your founders is struck by a bus a day, a month, a year, five years into the venture? How much of their vested and unvested founder-share goes to their heirs? Does it make a difference if their heirs are their children, their spouse, their siblings, or their favorite charity? Do you want to turn their founder-share from your super-voting shares to a share class with less voting power upon transfer [is that even legal? with vested or unvested shares?]? Does it make a difference if they are killed or merely incapacitated?

It's not a pleasant thing to think about, and it won't matter most of the time, but when it does...

Another factor that makes a difference -- but perhaps should not -- is whether you are reducing them from $10 billion to $1 billion or $100k to $80k.

In the first case, you might think "eh, they'll be fine anyway." But the magnitude of the money is not directly related to what is a fair reduction.

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