I’ve talked with numerous startups who has a founder that no longer works with the company and has taken their equity with them. One solution to this problem is called Founder Vesting.
Many startups choose to structure the founder shares as restricted stock. This reserves some shares which must be “earned back” by the founder over time. The longer the vesting schedule the more shares the founder earns. The corporation holds the restricted shares until vested.
Vesting founder’s shares incentivizes them to stay with the company and remain engaged with the business. If the founder leaves early, then the unvested shares could be used to compensate their replacement.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.