Chapter 5. Vesting Is a Hack
Vesting in general (and founder vesting in particular) is a wonderful tool for saving young companies from disaster. There are some deep misconceptions at work here that often cause founders lots of grief. Most of this comes from the simple fact that stock grants are, at their heart, a crude hack to minimize what would otherwise be a punishing tax burden. Vesting is a hack to the hack, if you will, to make the whole thing work properly. And it’s a tool that almost every founder needs.
Let me explain with a hypothetical.
Imagine AcmeCorp, a new startup. Jack and Jill are the founders. They incorporate and give themselves each a million shares—in other words, splitting the company 50/50. Clearly, they never got around to reading the previous chapter (and clearly I’m lazy about doing math).
The next day, Jack has a change of heart. Startups are a lot of work! He quits AcmeCorp and takes a cushy executive gig at a Fortune 500 tech firm. He takes his shares with him, because there’s no vesting plan in place. Jill’s left solo.
Years pass. Jill first works without salary, then pays herself a pittance. She bootstraps the company, starting with consulting and moving on to develop a highly successful web service. Then she issues another million shares of the company to a terrific venture capital firm in exchange for a big chunk of cash.1
Ignoring all the other dilution for employees and such, Jill eventually builds the firm into a tremendous success. The company ...
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