Why should founders vest—we’ve already been working on the business for two years?

Friday, October 19, 2007

Fred Greguras, Fenwick & West, http://www.fenwick.com/

Vesting among founders avoids the “free rider” problem, where a founder gets shares and then leaves the corporation and the other founders continue to make contributions. I recommend vesting schedules whenever there is more than one founder to try to make sure all founders continue to contribute. While the investors may renegotiate vesting schedules for founders at the time of a financing, providing some upfront vesting is appropriate when founders have been working on the business for a while. The balance is between maintaining the “stickiness” of the founder and recognizing prior contributions. I usually tell founders to err on the side of more stickiness.

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