The Time Value of Vesting Options
Jeff Bussgang has a recent post on why vesting schedules should anticipate the time to exit (the gist of it is that vesting should align VC and employee expectations). In his post he notes that time to exit these days is 6 to 8 years. His fund is likely performing better than the industry because it is more like 8 than like 6. In response to a comment from me the effect that vesting should be more keyed around expected milestones than arbitrary time frames, he notes that this is what employees get a salary for. Here is the quote: Employees get...
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Founder Agreements Redux
I wrote a second guest blog this one is about repurchase agreements and how to prepare for a parting of the ways for Sim Simeonov on the subject of founder agreements. This one is more . The prior one was on the subject of vesting. I have decided to repost it below. Sim's introduction: Following my [Sim's] posts on improving the performance of founding teams, founder agreements and strategies for dealing with poorly performing co-founders, I continue to receive many emails at FastIgnite from entrepreneurs having difficulties with managing and formalizing the relationships with their co-founders. I reached out to my blogger friend...
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Reverse Vesting and S Corporations
I recently ran into this interesting question: If you want to use reverse vesting and take advantage of 83(b) in an S Corporation what do you do about (1) tax distributions and (2) built up after tax profits? In the case of tax distributions, once the shares are issued, the holder will have to pay tax (to the extent that there are taxable profits) pro rata in accordance with his ownership. So, it seems logical that any distributions made to help stockholders pay this tax should also go to the holder of restricted stock on a pro rata basis. If they do not,...
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Yet More on Restricted Stock
Here is the disclaimer: There is a lot of downside to failing to make the correct filings in the context of restricted stock. You need to seek appropriate advice whenever you get restricted stock. Here is the post: A situation that commonly arises in connection with venture financings is when a founder is required to subject some or all of his or her shares to vesting as a condition to obtaining funding. Folks in our tax department note, and I agree, that: there may be some confusion as to whether a protective 83(b) election should be filed in the situation where a...
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Restricted Stock versus Options
One thing that I find many entrepreneurs (particularly first time entrepreneurs) struggle with is the distinction between options and restricted stock and why one would use restricted stock instead of options. See also the following link: Stock Options and Restricted Stock. I think it is fair to say that most, perhaps all, entrepreneurs have heard of options. But, just in case, options are contractual rights to purchase shares of stock (usually common stock) at a fixed price. In the employment context, options typically vest over time. For example, four year vesting is a common provision in a venture financed company. ...
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