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What percentage of VCs require founder vesting for sole founder?
Anonymous3 views2 answers
I am debating whether to enforce vesting for my founder shares. I am a sole-founder for my C Corporation. I do not have any investors yet, but I will be looking for Venture Capital investment very soon, so I need to know whether I should have vesting schedule on my share if silicon valley's VCs require that...I've heard that some VCs might keep current vesting schedule in place if terms are good with them. This way, I believe I save more money on taxes if I start vesting schedule now when pre-money valuation of company is close to 0/par value, comparing to before series A when pre-money valuation would be around couple million. And I would be paying less fees if I make 83B election now.
But if VCs may not require vesting for a sole-founder, I'd just issue share to myself.
Thank you,
While VCs often, and even usually will require vesting of some sort for the founder - just issue the shares to yourself now. They will not be at all surprised to see that you've done so. And if the want to make sure you stick around in order to get your shares, they will ask you to sign a restricted stock agreement under which you'd have to give up your shares if you don't stay with the company... or some other similar arrangement.
VCs are buying into your technology and your team (or yourself), not your structure. They will happily change around anything they don't like about the structure if they are happy with the business prospects. And if they aren't happy with your business plan, it doesn't matter how wonderfully you've set up the corporation.
So give yourself the stock but be willing to accept some restrictions when and if the VCs insist.
Putting in vesting provisions now before the VC’s come in is a brilliant idea. You will immediately make an 83(b) election at the shares’ present value, which is very low, so you will have minimal taxes. I’ve never heard of a VC who didn’t want to impose vesting, for good reason, to protect his investment. If you found one who didn’t want it after you have done it, you could both agree to waive it.
I hope you are not going to try to do a VC deal without good corporate counsel who is experienced in such deals.
