Founder vesting should be KPIs based or time based?


3

We was discussing the vesting agreement with one of our investors and we proposed a time-based solution. he said that vesting shouldn't be time-based but should depend on KPIs instead.

so each time we (the founders) reach a milestone in our plan, we get another part of our shares.

I don't know if this normal or not, but all I read online about founder vesting was time-based, and mentioned nothing about KPIs.

Wish you can help me know if KPI based vesting is acceptable or not.

Founders Vesting

asked May 28 '13 at 09:36
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Shreef
21 points
  • It makes perfect sense from the investor's point of view, but may be less than optimum for the founders. It is really up to you whether you accept the deal or not. – Steve Jones 6 years ago

3 Answers


2

Definitely time-based and it should be longer than 2 years (we did 3 years) so that the co-founders and early employees will know that the co-founders are committed. It is a clear signal to your team that you're all in otherwise they cant make the committment if you're just waiting for the next, better opportunity to surface.

KPIs are a bad measure. Things always change and then you may be committed to a good plan a year ago but doesn't make sense for the current market. Also if you want to make a change, you are introducing a lot of overhead into a business that is already resource starved.

answered Jun 6 '13 at 08:32
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Ankit Kapasi
31 points

1

I recommend time based for first startuppers, because it makes sense, and is generally simpler.

Kpi based is definitelty good for the investor, but its way too good for them. Basically KPI based vesting translates to saying: "You know what, If you build a successful company we earn lots of money, if not, the whole company is ours." This way they don't take any risk, and therefore should only get a lesser fraction from the company, but I would highly recommend not to agree this way.

Another thing is that milestone indicators in a startup can often highly fluctate, and can be willingly modified, for example user number by tricking, revenue by nonsense marketing strategy, and even sometimes unexpexted good deals for the company's future could show temporary setback in the indicators.

Not to mention that when the next milestone can only be reached by raising the next investment round, the original investors may force you into a very low premoney valuation, and therefore a very cheap investment(for them again)

Obviously I can't tell you which one to chose, but when negotiating a KPI vesting deal, you should keep in mind the above things.

Time based vesting is much more common thing, the investor should not be afraid that some founders will be "lazy" since the founders don't really have access to the invested money for themselves(lawyers take care of that). Lazy founders will get percents of nothing, if they cant add value to the company.

So be aware, Further reading, and good luck!

answered May 29 '13 at 07:01
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Jani Kovacs
75 points

1

I would say a mix of both, with the emphasis on time.

Time based, something like as an aggregate of 2 years, every 3 months you get 1/8 of your total. So if you leave you don't get nothing but you also don't get it all.

KPI based gets trickier as plans change and reality is rarely what you predicted earlier.
If you can define the KPIs such that they are measurable and flexible ... or you agree to redefine KPIs every 3 months, with a default of "same as last time" in case you don't get around to it ... then it is worth doing,

Why use KPIs?

  • Developer go off on tangents that aren't actually good for the business. A KPI of delivery is required.
  • Marketing will plan and scheme indefinitely. A series of feedback, engagement and proof is required.
  • Sales will wave many "prospects" in your face. A KPI of conversion is required.

I know cos I've done all of these things and have been guilty of all of it in some form or another over the years ...

That said the designs I built worked out, the marketing plans have seen us grow and the relatively few prospects I have converted have turned out to be key growth areas for the business ... there is always give and take so KPIs should be seen as guidelines and ranges for feedback, not "you got 9 not 10 this month, therefore your out".

Maybe see KPIs more as "if you do lots better, we will open up more stock to reward you".

answered May 29 '13 at 08:54
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Robin Vessey
8,394 points

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