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A Guide To Venture Capital Financings For Startups – Part 2
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Venture investors will want to make sure that the founders have incentives to stay and grow the company.
If the founders’ stock is not already subject to a vesting schedule, the venture investors will likely request that the founders’ shares become subject to vesting based on continued employment, and then become “earned”.
Standard vesting for employees is monthly vesting over a 48-month period, with the first 12 months of vesting delayed until 12 months of service are completed, but founders can often negotiate better vesting terms.
The key issues that the founders negotiate in this regard are the following.
Will the founders get vesting credit for time already served with the company?
Will vesting be required for shares they acquired for meaningful cash investment?
Should a vesting schedule of less than 48 months apply?
Should a vesting schedule apply at all?
Should vesting accelerate, in whole or in part, on termination of employment without cause, or upon a sale of the company?
A form of vesting that is usually acceptable to investors is the so-called “double trigger” acceleration, where vesting accelerates if the company is acquired and if the buyer terminates the founder’s employment without cause after the acquisition.
In our experience, some vesting in early-stage startups is typically required, but the founders will usually get credit for time spent with the company, as long as a meaningful amount of equity is still subject to vesting.
Also have a listen to our podcast on Innovation Licenses in the Dubai International Financial Centre, or D I F C. You can have your own tech startup too!!
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By 10 LeavesThis is a podcast-only feature!
Venture investors will want to make sure that the founders have incentives to stay and grow the company.
If the founders’ stock is not already subject to a vesting schedule, the venture investors will likely request that the founders’ shares become subject to vesting based on continued employment, and then become “earned”.
Standard vesting for employees is monthly vesting over a 48-month period, with the first 12 months of vesting delayed until 12 months of service are completed, but founders can often negotiate better vesting terms.
The key issues that the founders negotiate in this regard are the following.
Will the founders get vesting credit for time already served with the company?
Will vesting be required for shares they acquired for meaningful cash investment?
Should a vesting schedule of less than 48 months apply?
Should a vesting schedule apply at all?
Should vesting accelerate, in whole or in part, on termination of employment without cause, or upon a sale of the company?
A form of vesting that is usually acceptable to investors is the so-called “double trigger” acceleration, where vesting accelerates if the company is acquired and if the buyer terminates the founder’s employment without cause after the acquisition.
In our experience, some vesting in early-stage startups is typically required, but the founders will usually get credit for time spent with the company, as long as a meaningful amount of equity is still subject to vesting.
Also have a listen to our podcast on Innovation Licenses in the Dubai International Financial Centre, or D I F C. You can have your own tech startup too!!