Hacker News Reader

Comment by Alex3917 | Hacker News Reader

"or in other words a vesting schedule, which is how almost all funded startups are structured"

FWIW Seth is actually talking about a bootstrapped company and not a venture backed startup. As it stands the software is already complete, and there are maybe ten thousand potential firms who are well-suited to buy licenses. They don't want to grow in any way, so at any given time there are only two things the founders can do that would create value: sell a license, or add a feature / improve UI. Because of this I think some variant of Seth's suggestion actually makes sense in this case, albeit choosing a split upfront and then vesting is normally a much more sensible way to go.

View on HN

Even if you don't intend to seek funding you should still adopt the same model - there are very good reasons why it is used.

Doing an even-split stock grant amongst founders at the formation of a new company is absolutely the worst thing you can do. Almost all company classes allow you to create a stock pool - even if there are only 100 shares. You can then setup vesting schedules for everybody (including employees). I wouldn't even grant a single share to any founder.

I'm speaking from experience - first two companies I was involved with had co-founders that faded quickly and it took forever to work out the allocations after they eventually left. If you grant somebody stock, it is very hard to get it back.

If you started a thread here on HN about horror stories with stock allocations you would probably hear a thousand stories. Almost every startup has one, even the companies that go on to IPO or big acquisitions.

To solve your problem you could agree that a person has to give back his/her shares if he leaves the company before a certain time has passed (a few years) or if she/he doesn't live up to the expected level of commitment.

that is essentially what vesting does - except it is more legally sound.

So who "owns" the stock that's in the pool? Suppose a company is purchased before everyone is vested, who get's the cash?

within vesting agreements there are change of control conditions. For outright sales, it usually works out that those who are over the cliff have their vesting accelerated. In a merger (which a lot of acquisitions technically are), the acquiring entity will usually lock the employees down with a new agreement that includes the requirement to further vest out.

In other words, it depends. The best thing to do is to find a good law firm, pref in the valley and pref a firm that works with startups. Get a fixed price (or fixed price + options - some firms do that) for incorporation docs and establishing the pool and agreements etc. Setup a decent employee pool plus some for advisors and board members down the road. If you do eventually get funding, the VC will have a hard time arguing that you should wipe the slate clean if everything is already setup. VC's use pools and allocations to squeeze you further on a deal, usually without the founders noticing.

Don't use off-the-shelf agreements that you find online, do it properly. It should cost you $1-3k all up for the lot.

I am not sure what YC do as part of their foundation docs, I would be interested to know.

I tried to write a convincing argument why vesting is a must for all startups, bootstrapped or VC-backed: http://blog.fairsoftware.net/2009/02/11/reward-performance-w...

I have enough stories to tell and frankly, as a founder, I want to have vesting in place for myself and everyone else. It's the fair thing to do and it will eliminate a lot of headhaches down the road. You know that startups never turn out the way they were planned.

Reply on news.ycombinator.com