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Is vesting acceleration at seed round acceptable?

Is vesting 25% at the seed round normal even though it's only been a couple months? I know we've moved fast, but is that standard?

I thought the idea was to have various milestones over the course of first year, but one of the cofounders says it's normal to vest the entire first year (25%) once we close seed.

I know that would be good for me as a cofounder, but not sure that's good for the company.

Thoughts?

15 Replies

Kate Hiscox
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Kate Hiscox Entrepreneur • Advisor
Boss at Venzee
What does your seed investor say about that? Personally I have never heard of that and it wasn't the case for us.
Dimitry Rotstein
0
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Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
As far as I know, vesting acceleration applies only to liquidation or M&A events, not investment rounds (if that's what you're talking about). Of course, if the investor requires acceleration, then why not, but I can't imagine such a requirement.
Sati Hillyer
0
0
Sati Hillyer Entrepreneur • Advisor
Looking to Hire a Ruby Engineer to join OneMob - 2015 Gartner Cool Vendor for CRM Sales
Yes, I'm talking about our seed investment round, not a liquidation or M&A event.

I haven't asked our investors, right now we are just discussing the business. Do you think I should bring this up with the investors, or will it come up regardless?

Do you suspect investors to see that as something negative?
Kate Hiscox
0
0
Kate Hiscox Entrepreneur • Advisor
Boss at Venzee
Your investors will shoot it down if they are smart. They'll want standard four year vesting with a one year cliff. Probably the best you can hope is they won't want to start the one year cliff from the investment signing. But no way will they agree to 25% automatic vesting. Actually, I say that - maybe they will but in turn, I don't think I would want that investor working with me because it would speak to their experience.
Shobhit Verma
0
0
Shobhit Verma Entrepreneur • Advisor
building an adaptive recommendation engine
Bad idea! Incentives need to stay aligned.
0
0
X
Entrepreneur
It is a matter of contract and can be written however it is agreed. You really just want the founders and investors on the same page with aligned interests and clearly defined rights.
James Bond
2
0
James Bond Entrepreneur
CTO at SupplyBetter
In your dreams... :-)

Seriously though -- you (the Board of Directors) can do anything you want with respect to vesting. But as others have noted, it may hurt your chances of future investments, even if it doesn't kill the seed round.

Perhaps a more important question to ask is why you had a 1-year cliff in the first place? Generally it's so a co-founder doesn't walk away with a significant number of shares, if they decide to quite after a few months. But whatever the reason, what about it has changed, just because you're getting funding?
Tim Kilroy
1
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Tim Kilroy Entrepreneur • Advisor
Analytics - LTV - Boosting Profits - Digital Marketing
Your co-founder is confused between accelerating triggers (change of control, termination, etc.) and a funding event. I suspect that your investors will not groove on vesting acceleration. Your co-founder suddenly wants to accelerate his ownership of a thing that just acquired real value. (Previous to the seed funding, your equity had no real value.) But once someone has placed a value on it, your cofounder wants to have more of it faster? That seems mis-informed at best and concerning at worst.
Lucia Guh-Siesel
0
0
Lucia Guh-Siesel Entrepreneur
CEO & Founder, Bandalou
I've never heard of something like this and alarm bells should go off for any potential investors. It is very non-standard.
Sati Hillyer
0
0
Sati Hillyer Entrepreneur • Advisor
Looking to Hire a Ruby Engineer to join OneMob - 2015 Gartner Cool Vendor for CRM Sales
We essentially setup some basically milestones with the following weighting with respect to first year vesting MVP Built (10%) First Customer (10%) Seed Funding (40%) Join Full-Time (20%) Official Product Launch (20%) It was never officially agreed, but was more of a roadmap to move forward. The MVP is built, the cofounders are full time and we have some beta users, BUT we still need to raise seed, officially launch and convert our beta customers to paying. So I feel like we have a long road ahead. Vesting the entire first year at the seed funding doesnt feel right, but not sure how to take whats above and turn it into something that can still be motivating for the first year. Im concerned that if this one cofounder doesnt get their full 25% vest after the seed, they'll either 1) bail or 2) lose all motivation, do nothing and hang around for the year.
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