Get vested for time served

http://www.venturehacks.com/articles/get-vested-for-time-served

by kf • 19 years ago

9 9 19 years ago

rms• 19 years ago

I think everyone likes this site because it represents the fantasy of getting venture capital, which only a very small percentage of us will ever achieve. I'm not sure about you guys, but I'm a long way away from a five million funding round. It's still a lot of fun to learn about how to not get screwed by VCs.

BitGeek3• 19 years ago

What would you do with $5M anyway? Would that cover your salary for a year? Or for 50 years?

I'd like for people to realize that venture capital is not a fantasy, it is a nightmare.

madanella3• 19 years ago

From my experience, share grants, vesting and equity sharing are some of the hardest parts of the incorporation process and decision making. It's good to get as much thinking around them as possible because they are CRITICAL.

BitGeek3• 19 years ago

Ah, I see venture hacks isn't really on the side of the entrepreneur after all.

Any VC that asks you to vest your shares is a VC who is trying to steal from you.

The business pre-money valuation is value you created. Your ownership of that is property you have EARNED.

When you take VC money, they get a percentage of the company, and your ownership is diluted, but at the same time the value of the company goes up, as it now has more cash assets in the bank. The end result is immediately post money the value of your shares should be about the same as pre-money, only the ownership percentage of the company is less.

This is fair, and this is the consideration you give up in exchange for their investment.

However, if they ask you to also re-vest your shares, are asking you to give up you property (and your voting power) in the hope that you will "Earn them back"... which first assumes you hav eto earn them (eg: it is a losss of property if you don't own it anymore) and secondly assumes that they won't have pushed you out. While your shares are vesting you can't vote them, which gives the VC even more power.

Finally, they are not giving you consideration for these shares you're putting in jeapardy and so they are simply asking you to give them something for nothing. The investment they are making is already paid for by you in the dilution you are experiencing.

There is absolutely no reason for a founders shares to re-vest.

If your ownership in the company is not enough to ensure your interests are aligned with the VCs (Who really can't do much to make the company do well, but you can.) then the VCs wouldn't be investing-- period. So the alignment of ownership excuse is patently absurd.

No reputable VC will ask you to vest your shares. Only a thief would do that-- you own the shares, and asking you to give them up for nothing is trying to take advantage.

If a VC wants to put you on a vesting schedule to keep you incentivized.... let him offer you shares out of his pool to vest into.

Anything else is exceedingly greedy on the part of the VC.

gyro_robo2• 19 years ago

Hear, hear. Len Bosack and Sandy Lerner of Cisco talked about this in Nerds 2.0.1 here: http://video.google.com/videoplay?docid=-2534997893350167670&q=nerds+2.0.1#53m17s

They financed the company with credit card debt and were already doing $250,000-$500,000 a month in business when they finally got venture capital (after 70+ unsuccessful tries). However, they agreed to a forfeiture contract and a 4-year vesting period, and strongly advise everyone else not to do it that way.

They were so disgusted with the way they were treated that they sold off all their shares long ago. If they still held them, they'd each be worth about $24 billion today (they had 30% of the company, like the Google founders).

madanella3• 19 years ago

If you watch the video closely the story is a little different from that. The hired management forced Sandy out by threatening to quit en masse if she didn't leave. I got the impression that Don Valentine actually wished she could have stayed.

BitGeek3• 19 years ago

IF they were doing that much business, they shouldn't have taken venture capital--- but they, like most entreprenuers and people who get bad advice-- don't account for the real cost of venture capital.

That real cost is $24B in this case.

A quickly growing business can get funding from a variety of sources, many of which will take %6 payment, not require %600 and force you out of the business.

....but it sure is interesting to see all the different ways that VCs try to screw people-- re-vesting is something I saw in the past, and it didn't make sense to me then, but I have since come to understand just how asinine it is.

Get vested for time served

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