As a member of a four founder group, we are discussing vesting options. At the moment, we are all invested in the idea. But how do we ensure that ownership and benefits are aligned with contribution in the future? In other words, what happens if one of us stops or lowers contribution six months down the road? What if that person then comes back strong six months after that?
Wow a whole month and zero answers to this one? Its not a quick one to answer but I'll take a swing at it ;)
I've been in a multi-founder business several times and I can say from experience that it does present challenges. The truth of the matter is that all 4 of you will likely not contribute "equally" over the life of the business, and everyone has to be good with that from the start of there's going to be trouble ahead.
Vesting equity over time is easy, the sword attached to it is how to you oust someone that is not pulling their weight in the view of the other partners so that further equity does not vest to that person.
I think it is very important to clearly define what each of the partners roles are and what value they are bringing to the company up front. Remember, value does not necessarily equate to time committed to the enterprise - sometimes people can add tremendous value with very little time expended (bringing in a key customers or investors for example).
With that clear understanding of roles in place, a regular team review and blind voting can reinforce the question "is this person adding value", and if not, can that be fixed, and if not, should they be taken off the team without further equity vesting.
Things change. People change. Needs change. Your plan has to be flexible enough to add or remove key people as needed to grow the company. If this is clear and understood up front, it will reduce a lot of headaches later.
I hope that helps and I'd be glad to discuss further on a call if you like.
Best success,
Ward
First off, absolute kudos to you for recognising that this could be a potential issue for you down the line. Most co-founders in your position would simply say "let's all get 25% each and work the rest out later". Unfortunately (for me, but good for those I advise) I've been in a situation in one startup where a lack of communication in the early days set us up for the ultimate downfall of founder fall-out over aggressive diluting.
So here is my take. The business is worth nothing right now and you all contribute in different ways. Each founder can make a list of their milestones of what they believe they can achieve in 30 days, 90 days, 180 days and 365 days time.
Of course you will all be dependant on each other (oh yeah, they call this 'interdependence'...), therefore you all need to agree on the rate of progress in a 'plan B' scenario. For example if a designer said they will get the prototype designs out in the first 15 days but then can't do any more design until the devs do a prototype and have launched the MVP...well the designer needs to broaden their scope to ensure they are adding value in the case where the devs don't deliver on time.
Ok, at this point everyone agrees on what should be achieved by when. Now you can break up equity to be earned over time. If there is a fallout or someone can't work anymore, they simply vest what they have earned but know that it will be diluted over time.
The complications arise are when it comes to raising money. If someone (or multiple people) are putting in money, then they should reasonably get their equity portion for the cash up front and then earn their 'sweat equity' just like everyone else.
The exact proportions are totally up for grabs but the principle is this:
"No one knows the future. We all love each other but the universe is crazy and sometimes shit happens. Let's be fair now so we just have to follow the agreement later."
I would suggest that everyone earns more equity over time such that if someone stopped contributing they could maintain their share by contributing cash instead.
How to avoid all the heartache? Build an MVP, ship it, get customers to buy it...all within 30 days. Fail fast and move on, just have principles agreed with your cofounders up front for when you find a winner.
If you need specific advise, schedule a call and we can talk further.
