What's the best way of giving away equity to co-founders e.g. on specific targets met, options, vesting etc?

https://news.ycombinator.com/item?id=5666

by jamescoops • 19 years ago

2 4 19 years ago

news.ycombinator.com

jamescoops2• 19 years ago

Ok so if you're looking to use equity to build your team but already have a product, brand, some traction what's the best way to give away equity to co-founders? Obviously you can't just say here's X% of the stock - what if they leave next week for a new job, dont do any work on the site for the next 6 months? Presumably there are ways of structuring this but what are they and are they expensive in legal terms?

lak• 19 years ago

It shouldn't hurt to follow the same basic model as most companies use -- some amount of options, vested at a specific rate, probably with a one year cliff and then monthly vesting after that.

You have to be a lot more willing to fire, though; you don't want to find yourself owing stock to someone who wasn't productive for a year just because you couldn't think of the right way to fire him/her.

prakster• 19 years ago

In Nov 2006, Seth Godin addressed the concept behind this issue quite elegantly (I am paraphrasing the relevant points below; the direct link is at the end of this post):

--Don't do a deal where each side gets a fixed percentage. A 50/50 split of a company invented in a bar is always a bad idea. Even paying someone 5% for some sort of contribution can come back to haunt you. INSTEAD, BUILD THE DEAL AROUND A SHIFTING PERCENTAGE BASED ON CONTRIBUTIONS OVER TIME.

--Don't assume that the money you start with is going to be enough. Let's say you and a buddy each put in $5k and each take half the business. Then what? What happens when the money runs out and only one of you is willing to put in the next block of capital?

--Do a deal with someone you trust, but don't do a deal with a friend. You'll likely end up with neither a partner nor a friend in the end.

http://sethgodin.typepad.com/seths_blog/2006/11/dont_make_a_bad.html

jamescoops2• 19 years ago

thanks - it seems quite complex - what time period to vest over, how to do the contracts.

What's the best way of giving away equity to co-founders e.g. on specific targets met, options, vesting etc?

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