In reality, so-called “Founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. But that’s only the beginning of the story. These shares are allocated and committed, but not really issued and owned […]
Vesting
Protect Your Equity and Control Post-Financings
The other day, I was speaking with the founder of a recently-funded startup business. Her founding stake had been diluted down below 20%, based on a financing of under $1MM. This 20% stake was now subject to a four-year vesting period by the new investors (with a one-year cliff vesting period before she earned anything), instead of being […]
Vesting of Shares Explained
Vesting Explained in Simple Terms… Vesting of shares means that the stockholder has to earn those shares over time by providing services to the corporation. If a stockholder ceases to provide services to the corporation and owns unvested shares, then the corporation will have an option to repurchase the unvested shares at their original issue […]
What is Founders Stock, Legally?
The term “founder” and “founders stock” are not legal terms, rather, they are terms of art describing a certain class of early participants of a company and their ownership interests. You will not find the terms “founder” or “founders stock” defined in the corporations code. “Founders” of companies fall into the class of initial stockholder, […]
Vesting of Founder’s Stock
Founders of a startup are frequently surprised when venture capital firms or other investors ask for vesting provisions to be placed on the founder’s stock. The investors are seeking to provide sufficient incentive for each founder to work through the company’s critical early formation and development phase. If a founder leaves the startup early in the process, […]
Spreading Equity to Key Employees and Partners
As a rule, entrepreneurs are very protective of their equity, and try to keep 100% ownership for themselves. Usually this is fine, provided that important key parties (e.g. employees, partners) are appropriately motivated to help you succeed. Sometimes that motivation comes in the form of cash compensation (e.g. lucrative sales commission plan, profit share plan), […]
How to Protect Your Startup Founder’s Shares
In reality, so-called “founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. But that’s only the beginning of the story. These shares are allocated and committed, but not really issued and owned […]