Do More Faster: TechStars Lessons to Accelerate Your Startup

Chapter 71. To 83(b) or Not to 83(b), There Is No Question

Matt Galligan

Matt is the co-founder and CEO of SimpleGeo. He was previously the founder and CEO of Socialthing, a company that made a digital life manager that puts what you do online into one place. Socialthing raised $300,000 from several angel investors after completing TechStars in 2007, and was acquired by AOL in 2008.

There are some documents that you'll sign in the course of your life that are decidedly more important than others. Your marriage license, birth certificate of a child, and your will and testament are all perfect examples. But as a startup founder, you should add one more to your list: the Section 83(b) Election.

What is that, exactly? First, let's step back and take a refresher course in restricted stock, as all startup founders should know exactly what this is and how it affects them. Specifically, restricted stock makes use of a vesting schedule that will cause your stock to be earned by you over time, rather than all at once. While entrepreneurs don't ever start a company thinking that one of the co-founders would ever betray them, or maybe just not be quite up to snuff, it happens more often than expected. Because of that, restricted stock puts protections in place that allow the company to take back some of the stock that was granted to them in the first place if the founder doesn't workout, or decides ...