Tricky subject - how long should founder vesting schedules be?
Let's start with the easy point: yes, ?????????? ?????????????? ?????????? ???? ???????? ?? ?????????????? ????????????????.
It's very common for a founding team to split up at some point along the way in the first few years. If that departing founder walks away with a significant ownership stake (aka "dead equity") it will make future fundraising much more difficult, full stop.
So how long should this founder vesting schedule be?
Right now, a large majority of founders vest along a similar timeline to employees (4 year vest, though many founders do not have the 1-year cliff). There has been some movement towards 6-year vesting for founders though the shift has been fairly minor.
If we overlay the vesting schedules against some data on time from incorporation to various fundraising stages, the potential issue becomes clear.
4 years into the company's life = a little beyond Series A, on median. Many companies will still be raising seed funding 4 years into the journey. Does it make sense for the founders to be fully vested when there's so much left to build?
For many investors, the answer is no and they will insist on re-vesting founder equity (sometimes all, sometimes just in part) as a prerequisite to completing the round. This re-vesting is usually for another 4 years.
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? The analogy to an employee isn't a great one for founders. Yes, if an employee stays 4 years they should get their full allotment of equity (you could make a case for longer periods here too). Often a company will re-incentivize great employees with a new grant at 3 years in order to maintain the retentive quality of equity.
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? Common objection from founders : "How is a departed founders equity any more dead weight than an angel or Seed investor that no longer adds any value?" Just my thinking here, but a) the value from the investor is mostly the capital itself and b) the departed founder often owns a bigger slice of pie. Also the impetus to revest is coming from investors that want you, the founder, to stick around for a long time after they put money in so it's not the same discussion.
Not sure I have a perfect right answer, but I tend to think founders should vest over longer periods upfront. Open to pushback!
#startups #founders #foundervesting #venturecapital
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