Comments on: Raising money in good times http://venturebeat.com/2006/11/20/raising-money-in-good-times/ News About Tech, Money and Innovation Thu, 26 Nov 2009 01:33:32 +0000 http://wordpress.org/?v=2.8.5 hourly 1 By: Peter Cranstone http://venturebeat.com/2006/11/20/raising-money-in-good-times/comment-page-1/#comment-16923 Peter Cranstone Tue, 21 Nov 2006 19:18:44 +0000 http://www.venturebeat.com/contributors/2006/11/20/raising-money-in-good-times/#comment-16923 Ted, Nicely done. It's all about execution... do it well and no one will care. Do it badly and, well you know what happens :) Ted,

Nicely done. It’s all about execution… do it well and no one will care. Do it badly and, well you know what happens :)

]]> By: Ted Wang http://venturebeat.com/2006/11/20/raising-money-in-good-times/comment-page-1/#comment-16921 Ted Wang Tue, 21 Nov 2006 17:34:55 +0000 http://www.venturebeat.com/contributors/2006/11/20/raising-money-in-good-times/#comment-16921 When a founder has put significant (i.e. more than a year of full time work) time into developing a product and then raises money, you can conceptually divide the founder's shares into two parts. The first represents the value of the initial work and the second represents the value that will be created by putting the investment to work in commercializing the idea or expanding the business. A solution in this case is to make first bucket of stock fully vested at the time of the funding and the second bucket vest over a four year vesting schedule. Typically where this falls out is a 25%/75% split, with the larger number subject to four year vesting. After all, ideas are a dime a dozen, but the ability to execute on a plan is the real coin of the realm. When a founder has put significant (i.e. more than a year of full time work) time into developing a product and then raises money, you can conceptually divide the founder’s shares into two parts. The first represents the value of the initial work and the second represents the value that will be created by putting the investment to work in commercializing the idea or expanding the business.

A solution in this case is to make first bucket of stock fully vested at the time of the funding and the second bucket vest over a four year vesting schedule. Typically where this falls out is a 25%/75% split, with the larger number subject to four year vesting. After all, ideas are a dime a dozen, but the ability to execute on a plan is the real coin of the realm.

]]> By: Krish http://venturebeat.com/2006/11/20/raising-money-in-good-times/comment-page-1/#comment-16919 Krish Tue, 21 Nov 2006 11:46:28 +0000 http://www.venturebeat.com/contributors/2006/11/20/raising-money-in-good-times/#comment-16919 David, While your suggestion is valid, will it not by itself be a great incentive for VCs (or other majority holders) to oppress the long standing founders and force them to quit, especially if they are in the minority...? That way, by your argument the unvested shares get back into the pool and the VC can fill the Board with the replacement cherry he picks...?? May be Ted can address this too while making his reply to David. David,

While your suggestion is valid, will it not by itself be a great incentive for VCs (or other majority holders) to oppress the long standing founders and force them to quit, especially if they are in the minority…? That way, by your argument the unvested shares get back into the pool and the VC can fill the Board with the replacement cherry he picks…??

May be Ted can address this too while making his reply to David.

]]> By: David Cowan http://venturebeat.com/2006/11/20/raising-money-in-good-times/comment-page-1/#comment-16917 David Cowan Tue, 21 Nov 2006 07:17:16 +0000 http://www.venturebeat.com/contributors/2006/11/20/raising-money-in-good-times/#comment-16917 Ted, So what happens if the founder started working on the idea 3 years before the first venture round? As a VC, I don't want to invest in a company where the founder has little incentive to stay after a year. (Believe it or not, I want founders to stay.) A fair compromise I have made is to subject the founder's shares to four year vesting, but the founder's shares accelerate by three years if he's fired (effectively, the vesting is retroactive to when the founder started with the company). But if he quits, his unvested shares go back into the pool, to help recruit a replacement. Thanks for the thoughtful post. Ted,

So what happens if the founder started working on the idea 3 years before the first venture round? As a VC, I don’t want to invest in a company where the founder has little incentive to stay after a year. (Believe it or not, I want founders to stay.) A fair compromise I have made is to subject the founder’s shares to four year vesting, but the founder’s shares accelerate by three years if he’s fired (effectively, the vesting is retroactive to when the founder started with the company). But if he quits, his unvested shares go back into the pool, to help recruit a replacement.

Thanks for the thoughtful post.

]]> By: Ted Wang http://venturebeat.com/2006/11/20/raising-money-in-good-times/comment-page-1/#comment-16913 Ted Wang Tue, 21 Nov 2006 00:35:34 +0000 http://www.venturebeat.com/contributors/2006/11/20/raising-money-in-good-times/#comment-16913 Four years is the industry standard for vesting. Usually all of the founders' shares are subject to such vesting. The key issue is around when does the four year period start. IMHO the most equitable answer is when the founder began working full time on the idea. Since clean tech is so hot, I note that the vesting cycle is typically longer for these companies because of the longer time to market. Four years is the industry standard for vesting. Usually all of the founders’ shares are subject to such vesting. The key issue is around when does the four year period start.
IMHO the most equitable answer is when the founder began working full time on the idea.

Since clean tech is so hot, I note that the vesting cycle is typically longer for these companies because of the longer time to market.

]]> By: You Mon Tsang http://venturebeat.com/2006/11/20/raising-money-in-good-times/comment-page-1/#comment-16909 You Mon Tsang Mon, 20 Nov 2006 22:54:25 +0000 http://www.venturebeat.com/contributors/2006/11/20/raising-money-in-good-times/#comment-16909 As an entrepreneur, I think this is good advice. It is simple but a founder and VC should want a successful outcome to make both parties happy. Also, unusual terms now can also make the next round tougher to raise. As an entrepreneur, I think this is good advice. It is simple but a founder and VC should want a successful outcome to make both parties happy.

Also, unusual terms now can also make the next round tougher to raise.

]]> By: Peter Cranstone http://venturebeat.com/2006/11/20/raising-money-in-good-times/comment-page-1/#comment-16899 Peter Cranstone Mon, 20 Nov 2006 19:01:24 +0000 http://www.venturebeat.com/contributors/2006/11/20/raising-money-in-good-times/#comment-16899 Ted, What's an appropriate vesting schedule? Can you give some concrete examples, i.e. how many shares over how long. Thanks, Peter Ted,

What’s an appropriate vesting schedule? Can you give some concrete examples, i.e. how many shares over how long.

Thanks,

Peter

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