Rules Of Thumbs

Equity Ownership and Vesting Rule of Thumb

Nov 04

adminLegal, Startup, Venture Capital cliff, compensation, equity, investor, ROT, Rule of Thumb, schedule, stock, Venture Capital, vesting No Comments

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.

Deferred Compensation Rule of Thumb

Nov 04

adminLegal, Startup, Venture Capital compensation, equity, investor, ROT, Rule of Thumb, vesting No Comments

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.