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How does a sole-founder set up a vesting schedule for himself?

Lets say you’ve worked on a product alone for 6-12 months, you have a great prototype.  Next, you raise a seed round through SV angels for a $500k convertible note.

  • Since you’re going to use that for hiring, do you now begin a cap table?
  • Because you have a cap table, do you now set up a founder vesting schedule?
  • Do you grant yourself 6-12 months of vesting from your previous work?

Or do you only set the founder vesting schedule when 6 months after your seed you raise your Series A from Sequioa?

  • If you haven’t begun vesting, do you have less power in the company or is it all based on how many board seats you hold versus the VCs?  Are there covenants that allow the VC to be stronger just because you haven’t vested any shares?

  • Founders shares don’t vest on a schedule unless there are multiple founders and they want to set up such an agreement. If you’re a sole founder then your shares are automatically yours.

    Employee shares come out of the option pool, which is usually set around 10%. What will typically happen is that a VC will require that you set aside an option pool before they invest, that way their share isn’t diluted by the option pool.

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    • Not true at all. As an investor, I can tell you that I want every founder on a vesting schedule (sole or not).

      In addition to vesting being a company protection, it also keeps the founder motivated long-term.

      Reply

      • OP here:

        Assuming you’re an angel investor, is a founder vesting schedule standard for a convertible note? Or only Seed A+

        Assuming you’re a VC, do you gain any power in the boardroom because the founder has only vested, lets say, 25% of their shares? Or is it still based on board seats?

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      • I’m the guy that you’re replying to. Your statement is so idiotic. Why would I as a founder willingly let you make me work for my own shares in the company that I started?

        I would just decline your money because you would try to make me a slave of my own company; working to earn back the shares that I already had in the first place. If you don’t think that a founder is motivated then don’t invest in their company in the first place.

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        • Because as an investor, you’d be taking my MONEY. You can take a loan and own 100% of the company.

          The point about vesting is simple often the founder is a key asset of the company. The vesting is so you don’t exit early or you continue to perform based on YOUR projections.

          I’m sure if you value your company low enough, VC’s would be happy to vest 100% of your stock and issue you MORE stock that would be subject to vesting.

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          • I’d be taking your money and in exchange you’d get a percentage of my company; that’s the deal, nothing more. Instead, not only do you want to take a percentage of my company, but you also want to make me own the rest back as well; so basically I’d go down to owning 0% just from taking your money.

            A founder walking away doesn’t mean the death of a company; plenty of founder CEOs get replaced. You could just hire a CEO and pay them out of the option pool while the founder retains his shares.

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          • This vc/angel replying sounds like an unsophisticated investor. Vesting a solo founder? Ask any reputable investors or startup lawyers offline or on Quora, you’ll hear that vesting a single founder is uncommon and useless exercise. GTFOHWTBS

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      • I second that. As a sole founder, I’ve committed all of the sweat equity to bring a product to market. I’ve then granted the invitation to investors to join in the company’s growth. If anything, I’ll vest the investor’s shares while I continue control of the company — until the capital infusion has actually created value.

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  • Single founders vest 100% on day 1. It’s your company and yours alone at that point, you own it and can divvy up parts of it from there for funding as you wish.

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    • Exactly. Why would anyone want to set up an agreement where they have to earn back shares that they had to begin with. The only reason to have a vesting schedule for founders is in case there are multiple founders and they want to make sure that no founder walks away from the company too soon; so they make each founder earn his or her shares based on how long they’ve been there.

      Reply

    • This discourse is great! Reading opposing opinions is the best part, bickering or not ppl are passionate.

      Reply

  • In the very early stages VCs are investing in the people more so than the idea (not to say the idea doesn’t matter). As a result, institutional VCs generally want to make sure founders have a vesting schedule so that they don’t just bail. In the early days when you’re willing your business into existence you can’t just swap in a random CEO to do your job. It doesn’t work. VCs know this and they want you working to increase the value of their investment. Don’t like it? Institutional money is probably not for you unless you’ve got something that no one would turn down.

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    • You nailed it on the head. It’s the stage of the business that requires vesting.

      If you’ve bootstrapped the co for 5 years and got significant revenues. VCs sure as hell are not going to ask you to “vest”.

      On the other hand if the VC is investing based on a prototype you took a year to build you might be able to expect some revesting.

      If you just have an idea and nothing else VCs sure as hell would want you to vest 100% of your equity.

      Reply

  • I think it is a great idea to set up a vesting schedule for yourself upfront- because VCs will always ask for one. This way, you are already on your way and I have never heard of an investor asking to “restart” a vesting schedule.

    This way, the whole time you are working on getting funded you are already vesting.

    To the founders who “would never” vest, you are just showing how inexperienced you are because this is standard.

    Also- FYI, when you have co-founders, the best thing you can do when you start is have a vesting schedule for everyone so that if one of the founders drops out, they don’t maintain a larger percentage of shares even though they aren’t doing any work. It will save you a world of pain.

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