what bugs me about this is I don't know how founders don't feel like employees from the moment they get themselves on vesting schedule...
[edited - removed my ranting]
[edited - removed my ranting]
Not agreeing to this term (or negotiating heavily) when accepting investment capital can be a huge red flag for this reason. It immediately weeds out people who aren’t committed to the business.
grow up people, and found companies that actually can stand on their own.
Wouldn't this be equally valid as "self selects for people willing to take a worse deal" or even less charitably "self selects for suckers"
The biggest reasons we require founders to be on a vesting schedule is not really to protect our investments (as mentioned by another commenter). If the founders were to decide to screw us over somehow, our investment is already toast, and we potentially have other recourse.
It's to protect founders from each other. Most successful startups have multiple founders, but the most common reasons for failure is also disputes between multiple founders. Bad founder breakups are frequent. They can be survived, but only with a vesting schedule for the founders, so that the remainder founders aren't screwed by having to, in essence, work for the founders who left.
If you have two founders, and one leaves after 2 years due to a disagreement — without a vesting schedule, the remaining founder would have no motivation to continue to create value, given all the value he creates goes in an equal amount to the founder who left.
Even with a vesting schedule, in this case, we'll typically negotiate to repurchase the majority of the stock of the departing founder.
I expect to be heavily downvoted for even suggesting these things on this board (as my original comment was) but this logic reeks of VC bullshit and I suspect you won't refute that despite your assertion that this is totally only about co-founder protection you wouldn't hesitate to impose such a vesting schedule on a solo founder, likely using some of the other arguments in this thread that you've even discounted in the original post.
There are very few legitimate reasons that founders shouldn’t be willing to accept vesting schedules for their own ownership — I mean, there’s one: that you believe the value and potential of your company to be so great in a short time horizon that you can get rich quickly and leave within a couple years, and also believe with 100% confidence that the risk to do so is negligible and external factors (market downturn, you name it) will not be able to impede your progress. Call me when you build that company; it’s roughly equivalent to the perpetual motion machine of company-building.
Vesting schedules for founders are standard terms and there are a multitude of reasons they’re standard — as a founder I can give you reasons, and VCs can give you plenty more. As somebody who began a solo founder, there was no intracooperative founder risk to me accepting a vesting schedule and I did so anyway without hesitation, for the reasons I outlined earlier.
I don’t know how else to explain that this honestly isn’t a big deal at all.
Having it for solo founders makes sense in case another founder or executive comes later, in which case a similar issue can arise. If you truly are a single founder, there are very very few situations in case you'd leave involuntarily, given there wouldn't be anyone with the power and voting stock to fire you, and given your departure would likely mean the death of the startup.
There's very little downside to accepting a vesting schedule as a solo founder.
A vesting schedule is someone feeding you your equity back to you over time. Pure and simple. Of course it's easy to see why someone would accept such terms: VC's are offering to hand over large amounts of money. If it's a term most founders are willing to accept without getting much additional in return that is perfectly fine and up to each founder. Anyone who accepts it as "a favor this VC is doing for me" is delusional.
- Is the opportunity real?
- Can I build a product to start testing the hypothesis?
- Can I recruit believers (customers, investors) to help test my hypothesis and make it a reality?
- Finally, do I believe there’s a hypergrowth opportunity, what are the risks associated with pursuing that, and how do I minimize them without affecting the size of the opportunity space?
Once you get to the latter step the largest risk early on is lack of access to capital, and there are a lot of ways to negotiate that materially affect hypothetical “hypergrowth” potential (valuation / dilution, liquidation preferences, you name it) which make founder vesting schedules borderline irrelevant beyond aligning cofounder expectations and making sure people are bought in. You see it in a term sheet and go, “okay, what’s this?” — forward it to legal and get back, “standard terms, bigger fish to fry, move on.”
If you’ve never put the blood and sweat in to get to this point in negotiation it’s probably easy to overemphasize the role a founder’s vesting schedule plays early on.
It's about being babysat as downside protection for VCs.
If you want to control your own destiny, bootstrap. Otherwise, unless you're very successful, you're in for a world of pain.
You want to know that your cofounders (or a VC will want to know the founder) has a very real reason to stick around, especially in the toughest years.
Otherwise, you could jump ship at anytime and keep ownership of a huge part of the business.