equity, contracts, vestingI’m joining an early stage startup as a cofounder, and the contract has this language:
Notwithstanding anything to the contrary herein, if Recipient’s employment is terminated by Recipient prior to twenty four months having elapsed since the Effective Time (such twenty four month anniversary being the “Resignation Date”) then all of the Vested Units and Unvested Units (whether held by Recipient or one or more of Recipient’s transferees) shall automatically be forfeited and cancelled without any payment with respect thereto as of the Termination Date, in each case, without any action on the part of Recipient or the Company and after the Termination Date shall not be outstanding for any purpose.
Is this common for early startup members? Or is this unfair?
The shares pay you for your contribution. The number of shares they give you is based on your expected two year contribution. Only you can decide if its fair or not. I consider it acceptable.
They probably want to concentrate on growing the business, not interviewing someone every six months, knowledge walking out the door and investing time/energy on new people coming in the door. Chances are, they forsee a few storms and they want you to sail with them with calm waters and rough seas.
They are being honest up front, they hope you will stick around for two years - they cannot guarantee you the business will survive that long, but if the business does survive you will receive a share in that success.
I note that they say you surrender the shares only if you decide if you leave. Does the contract reward you for anything if they ask you to leave? If not, it might be worth considering an amendment, whereby if they ask you to leave that you receive an award pro-rata (meaning if they ask you to leave after six months, you get a quarter of the promised share/investment).
Yes. This is standard operating procedure for compensating startup employees.
This is called “vesting with a two-year cliff.”
This is a common type of compensation arrangement for most startups now.
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