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Comment by codethief | Hacker News Reader

> We were 51/49% to them and took a small round of pre-seed funding (~$100k) so our cap table is approx 40% for me and co-founder, 10% option pool and 10% investor. We have very standard shareholder agreements for 4yr reverse vesting with 1yr cliff.

Could anyone tell me what this means in plain English (preferably, ELI5)? I have no idea what term sheets look like in detail but I would really like to learn.

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It's a breakdown of the ownership of the company

  Op - 40%
  Co-Founder - 40%
  Option Pool - 10%
  Angel Investor - 10%

- The option pool for new hires means that if you're one of the first employees, your equity will come from that option pool. You may get 1% as an early engineer or 3% as an early executive for example.

- The investor owning 10% of the company means that they think the company is worth $1,000,000 right now. ($100,000 x 10)

- The 4yr vesting with 1 year cliff means the Op gets 1/48th ownership of the company every month over the course of 4 years. BUT BUT BUT they only get the first 1/4 (12/48th) until they have been at the company for at least 1 year. If the Op leave before 1 year, they get nothing.

The company's ownership is divided in shares, also called equity. A cap(italization) table details the distribution of equity. In this example, 40.8% (= 51% * 80%) for founder 1, 39.2% (= 49% * 80%) for founder 2 (assuming it's OP), 10% for investor and 10% for something called options that may be granted in the future to new employees that allows them to buy shares of the company at a low price. 4-year reverse vesting with 1-year cliff means that if one of the founders leaves before 1 year of signing the contract, they are forced to sell at no profit (still, not $0) the entirety of their shares to the other shareholders. After 1 year of staying at the company, they may keep 1/4 of their shares and are forced to sell only the rest. Following that 1 year mark, they earn the right every month at the company to keep ~0.833% (= 40% / 48 as there are 48 months in 4 years) of their shares and forced to sell the rest. At the 4 year mark of staying, they are no longer forced to sell any of the initial set of shares. It does not apply to any future grants for which new conditions or new schedules may apply.

IIUC:

OP is set to own roughly 40% in 4yrs -- 10% at the end of the 1st year (i.e the "cliff"), and the rest of the 30% across the remaining 3 years (probably more often than once a year). the "reverse vesting" means that everytime OP vests, OP's cofounder has the right to buy off the newly vested shares. this means that OP would get money but lose ownership if their cofounder chose to bought off the shares.

OP has been working 11 months so far and is approaching the 1 year cliff (so set to own 10%), so now their cofounder wants OP to leave the company and take only 3% ownership, and is threatening to leave and abandon the company risking any value at all. Presumably, cofounder also has the right to fire OP though OP hasn't stated anything about this.

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