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Comment by mindcrime | Hacker News Reader

All founders equity shall be subject to a repurchase right which also reflects a standard 4 year vesting schedule.

If we were taking outside money tomorrow, this would be a point of contention. I understand the idea behind a vesting schedule for founders (the investors don't want you to walk away two days after they invest), and I might grudgingly agree to something like that. But no way would I ever agree to make 100% of my founder equity subject to vesting or repurchase. The bottom line is, I've spend 2+ years working on this company, and without the work I (and the other co-founders) have put in, there is no company, no valuation, no nothing. I'm not going to put all of that equity at risk just to make an investor feel good. If we're all supposed to "be in this together" and have aligned interests, they would have to accept that we've already earned the right to a significant portion of the company.

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If the founders have been working on the company for awhile I'll usually agree to a shorter vesting schedule. That said, one of my favorite things in the world is when a founder proposes 6-year vesting for a company they've already been working on for awhile to set the right standard for everyone else.

I didn't realize anybody did 6 year vesting! It's weird, though... I get what you're saying about setting the standard and keeping things consistent, but founders are a bit of a special case, in that - in at least some cases - they've already put in a big chunk of their time.

I guess what would make sense, to my mind, would be a standard N year vesting (where N is 3, 4, 6, whatever) but give the founders credit for "time served" so to speak.

In any case, thanks for sharing this, and for promoting the "founder friendly" approach. It seems right to me, since you want the founders to be taken care of, so they remain motivated to work as hard as they can on building the best possible company. I feel like it's short-sighted of investors to try to squeeze the founders too hard. Worst case, you wind up with founders who have no real incentive to bust their ass building the company!

One way to hit the sweet spot is to figure out how much the founders have put in in 'sweat', their time at market rate and have that chunk of the stock be free from any vesting clauses.

I agree that a chunk free from vesting makes sense, but translating sweat to dollars is contentious. For a couple reasons I can think of:

1) Why should the investor retroactively pay your made-up salary for the privilege of investing? Valuation has something to do with the assets or future assets of the company; a salary is a liability.

2) How much is that sweat equity really worth if the company turns into the next salesforce/facebook/etc? Many millions upon millions. Any typical estimate ("let's call my salary $100k over the last 2 years....") is going to fall so short that it's useless.

For #1: investing in the company I founded is definitely a privilege. The investor obviously thinks that my company would provide a better return than investing elsewhere. High rates of return are not easy to find, hence it's a privilege to invest in the company I founded, in the vision I am creating.

Disclaimer: I am not actually founding a company, nor have I in the past, nor am I likely to build a company that requires VC investment, but this is what my attitude would be if I were.

> The investor obviously thinks that my company would provide a better return than investing elsewhere.

And you obviously think taking the VC's money is more valuable than taking a bank loan/cash advance/going with another VC. Both sides have something to gain. Only thing is, if you're looking for VC money you need the money. The VC doesn't need to invest in you.

Wouldn't you need a valuation to achieve that? Most seed rounds are convertible debt.

AngelList does 6 year vesting with its own employees. I convinced a startup I work with to do 6 year vesting, including my adviser shares (though I had some vest upfront for all the work I put in).

More startups should do this, including with adviser shares.

In the (hopefully) unlikely case one founder has to be fired by the others, this keeps incentives properly aligned.

Few things are as demoralizing as needing to fire a co-founder in the first place, but if they keep the same equity stake as the founders who remain it's worlds worse.

Sure, and that's why I can see putting a portion of the founder equity under a clause like this. But if the founder has, for example, 2 or 3 years already served building the company when the investment occurs, they have already earned some portion of their equity and it should be considered vested immediately.

Resetting vesting is a negotiated point, but when the team starts, it should be under 100% 4 year vested terms.

Though not unheard of, I found this the least founder-friendly part too. It'd be more founder-friendly to do 50% vesting over 4 years. This is especially true if the founder has already put in 1-2 years work, which would be a good and common practice before raising an A round.

On the other hand, we had no vesting schedule, so very founder friendly, but one of our founders left after 3 months by mutual decision. We spent the next 3 years trying to get him out of the company and ended up having to spend a decent amount of cash to buy him out altogether (not to mention the legal fees we had to pay to do so.) It can definitely go both ways.

FWIW, the way its usually handled when the founders have spent a lot of time previously on it is in one of two ways: a) agree to some vesting up front, and the remaining to vest over standard 4/1 terms b) agree to some acceleration (ie, you are given 1 year of acceleration, so its a 3 year rather than 4 year sched) or c) a combination of both. In the end, its a negotiated solution.

I would never join (as a founder) a team that did not have 100% vesting. People quit, unpredictably. Vesting protects founders.

I would never join (as a founder) a team that did not have 100% vesting. People quit, unpredictably. Vesting protects founders.

I'm fine with the basic idea of vesting, and you're right, it does protect the founders (from each other) to some extent. What I have an issue with, is a scenario where you work, as a founder for, say, 3 years, and then take outside investment money, and the investor demands 100% of your founder equity be subject to vesting and/or a "zero price" buyback clause. I would never, ever take that deal. A lot of things can happen, and there is value which has already been created by the 3 years that was put in.. as a founder, I'd expect to retain some percentage of my equity based on that. The exact details would, of course, have to be negotiated.

A lot of things can happen, and there is value which has already been created by the 3 years that was put in..

Indeed. I'm surprised to see so many people here think that a 100% lock-in is reasonable. That effectively sets a zero value on the work done to date, while at the same time presuming that a company is established enough to be worth serious investment, which is paradoxical.

I don't see how this really protects founders to a useful degree either, at least not for very long. While some degree of vesting creates an incentive for everyone to stay on board and do their best to make the project a success for everyone, it doesn't need 100% of the money involved to do that. Even if it did, there wouldn't be 100% lock-in after presumably no more than a year, and then you're back to having a significant chunk of equity that isn't locked in anyway. So again, the argument that a 100% initial lock-in and 4 year vesting period are both necessary seems to contradict the idea that you start releasing a significant fraction of the locked equity after only one year.

100% 4 year vesting is a day-1 requirement, but how much of vesting resets on a new round is obviously a negotiated point.

Where's the cliff in your setup?

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