By - jsandeep316
Companies would often issue a new 4-year equity package when an old 4-year equity package is fully vested.
It would need to be issued before the start of the third year, assuming a 1 yr cliff
Nah at the 4th year because the goal is to retain the employee. At the end of the 4 years, he/she doesn't have any more shares left to vest so you give him/her more shares so that there'll be more shares to vest if he/she stays longer.
That would be double dipping on the fourth year. Year 4 and the new year 1 would vest at the same time in your scenario.
More incentive to keep them around if they’re a good employee if not, that being they’re an average employee push it back a year perhaps?
Alternatively you could have the first cliff immediately in year 1 of the second option grant. My work recently did something similar we got bonus options and those that had been with the company for > 1 year at the time of the grant vested the first cliff immediately whereas those with <1 year at the company had the 1 year cliff.
Honestly, this take is a hot mess in my opinion and drastically undermines how crucial and formative those early years are at any startup.
4 is old standard and generally considered too long these days
> Is a greater-than-four-year vesting period common?
no, and it's a great reason to turn a potential employer down
I'm pretty sure the video is dealing only with cofounder vesting.
> > 4 is old standard and generally considered too long these days
> Nah, that's just marketing.
Marketing means trying to convince customers that there's a class of product they want to purchase.
> This new strategy basically allows companies to do what Zynga did
Imagine wanting to do what Zynga did.
> The early stage (seed/A/B) market is still very much 4 years
My experience on the ground suggests otherwise. Do you have any hard data?
What did Zynga do that we’re referring to in this context?
I wouldn't know. I'm not the person who made the statement.
All I know is Zynga was handed billions of dollars for a shit-tier facebook game, and blew it so hard that their company was worth less than their main office building for three years (that is, the company and staff were worth negative money) and they were never able to turn that around
Also, I wouldn't hold my breath about that the person who thinks cofounder stock rules are "marketing" was actually referring to anything specific about Zynga. I suspect they just said "oh, we want to be like big company," without considering that some big companies are laughing stocks that failed terribly.
Notice that they were asked for hard data to justify their argumentative claim of fact, responded, and removed that ask from their response. That's all you really need to know.
> My experience on the ground suggests otherwise. Do you have any hard data?
Talk to any top 20 VC or top 5 law tech/startup law firm.
> Talk to any top 20 VC or top 5 law tech/startup law firm.
Thanks, I'm running a startup with one of each right now
I see that you're trying to use someone else's earned reputation, and no evidence, to shore up your opinion, and avoiding talking about how the word "marketing" had no place there in a way that a below average teenager can point out
I'd say "let me know how that goes," except, don't
> Thanks, I'm running a startup with one of each right now
Pray tell, what are they telling you?
Literally no one is saying that anything but 4yr is standard at the early stage--I know this as a fact, having literally just watched friends/family go through the process for the earliest of stages (which we are not).
You're making a big, declarative statement--that the entirety of conventional *and* historical wisdom is wrong. Not just "the world shouldn't be working this way", but the world *isn't* working this way.
You are the one who needs to be pointing to evidence to support your assertation, as there is literally zero info anywhere (websites, twitter) that supports your claim.
Given that you are making an *objective* argument--i.e., what the market *is*--this is basically impossible.
> Literally no one is saying that anything but 4yr is standard at the early stage--I know this as a fact, having literally just watched friends/family go through the process for the earliest of stages (which we are not).
I agree, it is possible for you to know what everyone is saying, because you watched a few persons try to do this. Saying something like this isn't a giant red flag.
> You're making a big, declarative statement
he says, the very next sentence after saying "literally no-one is saying this" 😂
> You are the one who needs to be pointing to evidence
Mmm. So when someone asks you for evidence of your claim, you declare that nobody on the entire planet is saying their opinion, and then demand evidence in return.
Highly effective stuff.
> Given that you are making an objective argument--i.e., what the market is
I never said anything about what the market is, and that's not what an "objective argument" is.
I'm sorry that you weren't able to admit that you used the word "marketing" incorrectly, and that you can't show evidence of your claims, and need to declare someone else needs to give evidence instead.
Good luck to you
The marketing in this case…
Customer = cofounder
Class of product = equity
Cost of product = time / reduced salary
Cofounders are not customers. People do not purchase five years in a startup.
No, of course that's not "the marketing in this case."
There's a point at which if you need to stretch this hard, you aren't making a point, you're just trying to table turn
Founders shouldn’t see themselves as employees
It's a great reason to turn a potential cofounder down too
I'm here to do a job, not to make someone else feel like I'll show up for half a decade. If you're growing fast enough, you should be replacing founders anyway, and I'm not interested in losing my share because I did such a good job that we grew faster than your guessed time envelope wants.
You can't get a good cofounder with onerous terms like this
Source: have started many successful startups
There’s people that will accept a 4 year vesting period those are the co founders you want anyway.
😂 Imagine trying to pick your cofounder by whether they're willing to accept a particular shape of stock
I rather not have my co founder scadaddle so yes that’s a prerequisite if they don’t like it oh well.
This is exactly the attitude that means that you're not ready to found
"I'm going to lock you into my company with predatory stock agreements, instead of just ensuring that we have a happy and safe work environment that you don't want to leave"
Things always get bad. That's life. When they do, you're going to try to clamp down, and everything will go south.
> if they don’t like it oh well.
Good luck 😂
Serial cofounder here. 4 year vesting is pretty standard. Too long or too short depends on idea and team and projet status on incorporating. But generally it’s fine with a 1 year cliff and 3 year vesting schedule.
Actually you want to look at reverse vesting but that’s a detail.
Thats standard for co-founders and what the video is probably referring to. It's always a buyback program. Why would cofounders deal with options when their stock is worthless so taxes would be near zero when the stock is split between the co-founders? Not until the first raise does the stock have value. Founders can stick some of the stock in a Roth IRA and pay no taxes on the gains when they retire.
Investors are trying to get out ahead of the ball with the market crashing and take advantage of founders. Founders need to jointly say fuck you, but we wont. The best investors wont push the subject because they know top teams wont accept it. Shitty investors will push it because they see an opportunity to squeeze more money out of the deal.
Good luck winning top talent over with a shitty vest schedule over 4 years…
But this is about cofounders
First of all, You better hope your cofounders _are_ also very talented.
Secondly, which do you think is harder to attract? A cofounder or early hires?
A cofounder obviously, but the expectations of commitment to the business of a cofounder are very different from early hires: they’re supposed to be in it for the long haul, and if a 5 year vesting period would be problematic, it would be an excellent starting point for a more in-depth discussion about expectations of commitments.
In my experience, for cofounder discussions, these vesting periods are perceived more like “if the business is still around in 5 years, you bet your ass I’ll still be there!”
> A cofounder obviously, but the expectations of commitment to the business of a cofounder are very different from early hires: they’re supposed to be in it for the long haul
Are they? Often times great founders are the right people to be taking the company from say, Series A to Series B. Their equity shouldn't be reliant on staying around when the time could come sooner or later where it makes more sense to replace them. At that point you're incentivizing a bad decision.
Surely that is a completely different discussion than the vesting period. I have to say that I haven’t ever heard someone mention this type of thing up-front, as in the vast majority of the situations, it never gets to that point.
Also, it’s incredibly hard to know this beforehand: it usually takes putting someone in a leadership position such as that before realizing they’re not capable at it.
Then, the question automatically becomes: what are you looking for in a cofounder? If you’re really just looking for someone “until Series B”, then good luck finding a partner, because there are not going to be many (qualified!) people that want that type of deal.
No sounds standard for corounders. What I have seen happen is the vesting essentially reset when you take on investment.
Who said a vesting schedule needs to be aligned with an exit? Vesting is to ensure an employee sticks around long enough to have impact. How you as a founder/ceo determine impact as aligned with individual performance is going to be specific to where a startup is at in it's development and growth.
It’s too long. I wouldn’t join a startup with a longer vesting period.
Founders are often confronted with changing their vesting period as terms for a new round. This would be a no-brainer for a VC investing in a slow-moving start-up, where the founders are nearly vested yet still need the capital. BTW, I think I would want an agreement with any co-founders for vesting flexibility in the event of a new round, as this happens a lot.
this is dumb as hell, toxic VC mentality. It's absolutely not in the best interest of the founder to make it even more difficult to recover the equity they have in their own fucking company that they own.
I'd want longer vesting period for my cofounders. I want cofounders on the team that have long term vision. Not a hill to die on though, just another parameter for negotiations.
Senior product design and ex-founder that sold his startup and joined a consultancy as an early employee here:
After almost 4y as an employee, I was offered a vesting contract to become a minor partner. To my surprise, it was a 1.5y period vesting, with only 6mo required to actually become partner (and 1y to expand my participation) with lots of early access to company finances and strategy.
My consultancy doesn't plan to become public, so instead of stock options they shared actual pieces of the company that granted me access to a fair participation on the annual profit sharing and a huge monthly pay increase. They already onboarded other product consultants to the board like this (mostly PMs and tech leads), and even offered second vesting rounds to some of them, expanding their position as minor partners tied to company goals they must achieve.
Can't say if this is the perfect model, but other colleagues of mine have been offered the traditional 4y stock option vesting and at least 2 of them refused these to go get a better paying job or leadership positions elsewhere, since the IPOs were too far ahead or too uncertain.
Every series round the vesting gets renegotiated and resets, so it does not really matter
99% of options granted never make a cent for anyone.
I would never for a vesting schedule over 4-years. Unstandard and life's too short. Most startups statistically fail anywyas.
Four years is already quite long, even as a cofounder. There's no point in extending it beyond that as you have no idea if you'll even be around that long, depending on the state of the company when joining.
4 Years is standard and also too fucking long. I demanded that half my stock options vest in two years and the rest have no vesting period at all. I got what I wanted.
Four years is standard. And is becoming what most would consider too long, if anything.
That said, I think people worry too much about share options considering they seldom convert to hard cold cash.
Things are viewed as yearly total comp now for employees. It’s not the vesting period, but how much per year now that matters.
It's common practice to have a full equity package over 5 years(1 year cliff included) Once fully vested, depending on the employee performance & ambitions you can negociate the compensation package overall(more shares, money, specific benefits & learning opportunities etc)
Break even in 5 is ideal.
Yeah the cofounder can leave the company after 4 year. From s-1& LinkedIn of coinbase cofounder, that is what I speculative. I am personally not very sure and will prob just have 0 cofounder …
> 4-year vesting period for cofounders
it's the max
4 is standard. The average startup tenure is under 2 years.