Blog :: Home > Blogpost

Why do investors ask startup founders for stock vesting/ restrictions?
Why do investors ask startup founders for stock vesting/ restrictions?

A majority of founders today seem to be comfortable with stock vesting provisions in termsheets. However, still encounter a few (usually first-time) founders who see vesting as investor tactic to gain more control. Some feel they’re being forced to ‘earn’ ownership in their own ventures.

This interpretation of vesting is harmful. Investors invest in the mid-long term future potential of a startup, and the team sticking around to achieve its ambitions is key. A non-executive founder (w/o day-to-day role) is as good as dead equity. If a founder leaves, it’s a big blow to the execution ability of a team.

Vesting provisions are important to dis-incentivize founders from quitting. Especially when the going gets tough. Most of all, vesting is the single-most important measure of a founder’s commitment to the startup & the co-founders. In an unrestricted stock situation, a co-founder who’s exited gets same value as one who’s still carrying it on – catastrophically unfair!

Of course, have riders for death/disability, termination, liquidity events, etc. But get this straight, every round will come with fresh ask for vesting by investors.

I’d never invest in a startup where founders want no vesting.

Tags: , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *