Structuring a stock earnout on start-up?


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We are contemplating a start-up with 2 main founders, who will put cash in and work in the business, and 2 angel investors who will only put in cash.

The way we want the ownership to work out is:

F1: 35%
F2: 35%
A1: 20%
A2: 20%

The amount of capital the each member is putting is is as follows:

F1: $12.5K (10%)
F2: $12.5K (10%)
A1: $50K (40%)
A2: $50K (40%)

We would like to structure the deal in such a way that F1 and F2 get their voting rights on day 1, but they don't actually get their additional ownership until they have worked for two years. In other words, they start off with 10%, and have to earn that additional 25% by operating in the business.

(The reason for this is that there is a very real possibility that F1 or F2 decides to leave the company for some reason. They deserve some portion of that additional ownership, but not all of it. The company can be run successfully by only F1 or F2.)

How can this be done? Different classes of stock? Stock options?

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asked Aug 6 '12 at 03:20
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Stringfellow
18 points

1 Answer


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For Founders 1 and 2, just give them 35% on day 1, and have 10% vest immediately and 25% vest over 2 years. Let the company have a repurchase right (usually at fair market value for vested shares, but cost (i.e., a nominal amount) for unvested shares) if founders 1 or 2 leave the company.

For documents: founders 1 and 2 would have each have a founder's stock purchase agreement with these terms.

My unsolicited view is that you're giving away way too much of the company to the angel investors; they don't do any work but get 4/7 as much of the company as each founder?

answered Aug 6 '12 at 05:53
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User6492
1,747 points
  • So, the founders get to vote their unvested shares? – Stringfellow 7 years ago

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Partner Entrepreneurs Stock Options