Founder Vesting

Foley Hoag LLP


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A couple of quick observations resulting from a quick read of a "standard" founder vesting agreement.
United States Strategy
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A couple of quick observations resulting from a quick read of a "standard" founder vesting agreement.

(1) Be wary of "standard." There are some items legal things that are truly "standard" but not as many as some lawyers may imply.

(2) You can under most circumstances get some up front vesting from VC type investors. My experience is that for many startups in which the founders have invested some sweat, investors will give you some credit in the form of fully vested stock. So, a typical arrangement (again depending on the facts) might be 10% to 25% fully vested at the Series Seed (or Series A, as the case may be) closing with the remaining amount vesting ratable on a monthly basis over three years.

(3) The notion of a "cliff" seems out of place for founders who have been working on a startup for some months (or longer).

(4) I see a lot of so-called double triggers (as opposed to full acceleration upon a sale). So, sometimes you see everything that is unvested vest upon a sale (a liquidity event other than an IPO). More often, however, I see something along the lines of half of the unvested vests with the remainder subject to the "old" vesting schedule provided that (and here is the second trigger) if the founder is terminated by the acquirer in the liquidity event (or the founder quits for good reason) within some agree upon time after the liquidity event (say six months, but sometimes more) then the remainder vests.

(5) Vesting stops when the founder ceases to work for the company. The notion that unvested shares might vest immediately upon termination other than for cause has some appeal to founders, for obvious reasons, but you may need to come to a parting of the ways with one of your co-founders. If you do, that fully vested block of shares (typically a big percentage of the common stock) may loom very large.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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