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

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What’s with this tranched investing?
What’s with this tranched investing?
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I had another call today where co-investors batted for tranched investment to ‘ensure financial discipline’ in startup founders. I am strongly opposed to it. Either you trust in founders and invest, or don’t. Put terms in agreement to ensure financial oversight.

Hate milestones based investing. Things go wrong all the time. Putting founders under added stress of uncertainty on funds is useless.

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Should you have targets in investor agreements?
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If you’re an entrepreneur raising funds and the investor is keen to put in specific targets in your shareholder agreement & link it to valuation/ investment tranches, understand the following 3 things before you sign.

1. Get ready to be distracted: This isn’t super founder friendly behavior and builds uncertainty on your dilution/ funds availability. It will be distraction that’ll keep from 100% focus on business even after fund closure. Question if the investor is right for you.

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