What is vesting?

Ok. Let’s talk about vesting. Every sophisticated startup subjects the shares it issues to vesting. This is a situation in which you and your other founders receive all your shares upfront. This means you can vote the shares and manage the company as you need. However, for a period of time, the company has a right to repurchase these shares for $1. Over time, this right to repurchase diminishes. After 3 months the company can only repurchase 90% of the shares, after 6 months 80%, etc. After three years (which is the amount of time we recommend for founders) all the shares have vested and the holder owns them fully and outright.

Why do we do this?

So why do we do this? Look, sometimes things don’t work out, for good reasons and for bad. You start a company with a great co-founder, and then the cofounder gets an amazing job offer from Google, or runs off to become a surf instructor in Bali, or you realize after a while that you’re not a good fit.

One of the founders leaves, and the other founder or founders are left holding the ball. What’s worse, you have to find a new co-founder. But what are you going to if you don’t have any shares to offer the new cofounder because the old cofounder left with them? This is where the repurchase right comes in. The Company can claw back the shares that haven’t vested and can offer them to someone new to carry the torch. Vesting protects co-founders from both good and bad situations.