Posts Tagged ‘compensation’

Equity Ownership and Vesting Rule of Thumb

Sunday, November 4th, 2007

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:

  1. Better terms than the vesting schedule a VC will impose on you…and they will impose a vesting schedule on you.
  2. 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.

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Deferred Compensation Rule of Thumb

Sunday, November 4th, 2007

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.

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