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Structering vesting plan for co-founders

I have a question in regards to structuring a vesting plan for co-founders.
Our situation is that we are three co-founders with equal share. Because our
project is a non-profit community project, we cannot be sure about
everybody's time commitment as time passes on. Our project might not become
a fulltime opportunity for some time if ever.

So we were thinking when one partner drops out, that the other partners vest
with more share for the time of service they participate. The question is
how to structure this the best way:

a)      Dilute shares over time so that the part of the dropped out partner
becomes smaller and smaller over time.

b)      Somehow create a pool of undistributed shares and then vest for the
time of service.

I am not sure how the latter option can work as the entity itself cannot own
itself I assume. Another piece of information is that we are considering an
S-Corp just because we can deduct any operation expenditures from our income
tax.

Any suggestions on how this is normally structured?

--- Stefan

sbrun...@spamcop.net

[removed to protect privacy] (cell)

15 Replies

Stephen Kowalski
0
0
Stephen Kowalski Entrepreneur
Senior Technology Leader

I have this exact same question.

On Tue, Jan 15, 2013 at 10:23 AM, Stefan Brunner <sbrun...@spamcop.net>wrote:

Eric Rogness
0
0
Eric Rogness Entrepreneur
Technical Product Manager

I may be stating the obvious here, but a not-for-profit has no shareholders.

EricRogness.com(647) 297-7126

From: skowal...@gmail.com
Date: Tue, 15 Jan 2013 10:42:56 -0800
Subject: Re: [FD Members] Structering vesting plan for co-founders
To: sbrun...@spamcop.net
CC: [removed to protect privacy]; rica...@ontechies.com; johanbo...@gmail.com

I have this exact same question.

On Tue, Jan 15, 2013 at 10:23 AM, Stefan Brunner <sbrun...@spamcop.net> wrote:

Michael Brill
0
0
Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products

I'm assuming it's non-profit with a small n and that you're not actually non-profit status.

I guess I don't understand the problem.  Let's say everyone is on the same vesting schedule (let's say 4 years) and let's say you want some minimum commitment so you have a 6 month cliff.  If the person leaves within 6 months, then 100% of the equity/options go to remaining 3.  Even if they leave after 6 months, they'll only have ~ 4% after 4 years.  Of course you can always issue additional equity later to further reduce.

...Michael

On Jan 15, 2013, at 10:48 AM, Eric Rogness <ericrogn...@hotmail.com> wrote:

Inder Singh
0
0
Inder Singh Entrepreneur
Founder & CEO at Kinsa

I agree. Im not a lawyer and defer to any here. However, I have started both nonprofits and for profits. If your status is indeed nonprofit (501c3 or similar) you cannot distribute profits to shareholders or yourselves. So the concept of equity doesn't make much sense. If this is more about control over the direction of the non profit, you can probably handle that through some sort of board structure where you are all on the board but that is subject to some sort of minimum time commitment etc. Just a thought.

Sent from my iPhone

On Jan 15, 2013, at 1:48 PM, Eric Rogness <ericrogn...@hotmail.com> wrote:

Michael Brill
0
0
Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products

I think it's important to note that there is a distinction between protecting the interests of employees who keep the faith and just being punitive.  Saying FU to someone after they put in a year of their life into the earliest, highest-risk stage of a company just because it's no longer a fit is bad form in many cases.  Put in a longer cliff or back-weight vesting to make it super-clear what the expectations are for commitment, but don't put in clawback provisions.  In the end it doesn't really matter because you can always issue more equity to dilute people who leave.

On Jan 15, 2013, at 11:43 AM, Jai Jaisimha <j...@openmobilesolutions.com> wrote:

Stefan Brunner
0
0
Stefan Brunner Entrepreneur
Cofunder and COO at TheTechMap, Inc

Hi Michael,

Thank you for your reply.

So you are recommending essentially a strategy of cliff plus delusion.

--- Stefan

On Jan 15, 2013, at 1:52 PM, Michael Brill <mich...@botnik.com> wrote:

Stefan Brunner
0
0
Stefan Brunner Entrepreneur
Cofunder and COO at TheTechMap, Inc

Hi Jai,

Thank you for your reply. Buy back also appears to be a good solution.

--- Stefan

On Jan 15, 2013, at 1:43 PM, Jai Jaisimha <j...@openmobilesolutions.com> wrote:

Stefan Brunner
0
0
Stefan Brunner Entrepreneur
Cofunder and COO at TheTechMap, Inc

Hi Inder,

We are starting it as for-profit company. It is a hobby for now and we do not have a revenue model, but that does not say that we will have one at one point.

--- Stefan

On Jan 15, 2013, at 1:09 PM, Inder Singh <irsi...@gmail.com> wrote:

Stefan Brunner
0
0
Stefan Brunner Entrepreneur
Cofunder and COO at TheTechMap, Inc

Hi Stephen,

What are your co conclusions out of this discussion?

--- Stefan

On Jan 15, 2013, at 12:42 PM, Stephen Kowalski <skowal...@gmail.com> wrote:

Jean Barmash
0
0
Jean Barmash Entrepreneur
Engineering Program Manager at Tradeshift

BTW, I am reading a great book right now that talks about how to structure
founder relationships.  It's based on a lot of research.

Founder's Dillemas

http://www.amazon.com/Founders-Dilemmas-Anticipating-Foundation-Entre...

This is what Brad Feld had to say about it:

If you are a founder, or considering being a founder, a board member, or an
investor, buy The Founder?s
Dilemmas<http://www.amazon.com/exec/obidos/ASIN/[removed to protect privacy]/domofa-20>
right
now. One of your goals should be to do everything you can to maximize your
chance of success. This book will help a lot and you won?t regret the time
you invest in it.

http://www.feld.com/wp/archives/2012/05/book-the-founders-dilemmas.html

Jean

Jean Barmash
Co-Founder & Organizer,  CTOSchool.org, an NYC meetup for startup technical
leaders

email: jean.barm...@gmail.com | skype jbarmash

On Thu, Jan 17, 2013 at 1:35 PM, Stefan Brunner <sbrun...@spamcop.net>wrote:

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