I am just curious about vesting as against 3 things - Dilution, a Co-founder leaving, a co-founder getting fired
Please assume a 2-man team with the equity split among the founder & CEO (A) and co-founder (B) being 80% and 20% (4:1 ratio) and assume both of them have same vesting schedules (20% each over five years).
Say after year 1, A and B have vested 20% of their initial split (i.e. A now has 16% shares vested and B has 4% vested; also, A's 64% is unvested as against B's 16%)
Now, my questions are around how will B's vesting and dilution be affected if at the end of year 1:
a. An angel is to be alloted 25% stock
b. B decides to leave on his own after Year 1
c. A decides to fire B (since A is the CEO)
Please do share your thoughts on what is common across start-ups in such situations!
I understand this might be considered silly and elementary for this forum. But would be highly beneficial if you could take a few minutes out in that case to point out existing relevant literature on this forum or elsewhere!
This depends entirely on the company's articles of incorporation and the various contracts:
a. Are new shares issued, or does the angel get existing stock? 25% of what? What has been agreed with the investor?
b. What does the contract with B say?
c. What does the contract with B say?
More on (a). Suppose there are 1000 shares authorized in the company, and at the end of the first year A has been issued 160 shares and b has 40. You can now either sell 25% of the 200 shares already issued to the investor, authorize and issue 67 new shares to the investor (who now owns 25% of the issued shares), or authorize and issue 333 shares to the investor (so the investor owns 25% of the authorized shares).
So as you can see, the answer to all three questions is "it depends".