Legal, Startup, Venture Capital cliff, compensation, equity, investor, ROT, Rule of Thumb, schedule, stock, Venture Capital, vesting
A good rule of thumb regarding equity ownership in your company is to institute a vesting schedule on stock grants. This has numerous benefits the two primary being:
- Better terms than the vesting schedule a VC will impose on you…and they will impose a vesting schedule on you.
- Helps eliminate problems and costs associated with individuals leaving the firm with equity before a liquidity event.
The rule of thumb for vesting time horizon is a 1 year cliff followed by straightline monthly vesting.
Legal, Startup, Venture Capital compensation, equity, investor, ROT, Rule of Thumb, vesting
A good rule of thumb for a startup environment is to avoid “deferred” compensation. Any type of investor (bank, angel, friends and family, and especially venture capitalists) will view deferred compensation as a significant deterrant. Since deferred compensation has seniority over all other stakeholders, it adds a level of risk to their investment. A better way to compensate yourself is through paying yourself in equity through an earnout or vesting schedule.