investors, vesting, incorporationWe’re figuring out our vesting now. In general we like the usual approach: 4-year vesting, 1-year cliff, acceleration on change of control, etc. We’re also considering the retention grants that Fred Wilson mentions so on one is ever more than 50% vested until change of control: http://avc.com/2010/11/employee-equity-vesting/
The nice thing about it is it aligns founder interests with investor interests in looking for a profitable exit. BUT it seems to exclude the possibility that the company could simply become very profitable and reward investors without having to exit. Is this ever a realistic concern, or do investors universally desire a sale or IPO?
This concern has some merit since there are companies that, for many reasons, prefer to stay private even though they are profitable and could push for an IPO.
In the simplest way, I guess, you could pay investors a % of the profits just as it’s done with dividends in a public company. You can also buy back the shares which would equate to an exit for them.
If the company ends up in the situation you describe then the best way to handle it is to just give bonuses to your key employees.
That way you still retain some flexibility in who gets what regardless of how the option agreement is written.
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