Getting what’s coming to you

July 20th, 2010 by hoha Leave a reply »

Today, I spent much of the day sifting through a variety of legal documents that needed to be signed and finalized since there was an equity change with my little start-up. I’m comfortable with contract language having previously composed riveting material you find in policy manuals and handbooks but I can understand why many people wish Google Translate had a Legalese option.

One of the things I read had to do with the vesting schedule. It is called a Membership Unit Purchase Agreement for those that like labels or MUPA for those that live in the world of acronyms. Basically, mine says how many shares of the company I own and when they really become mine. It’s a way to ensure that everyone on your team is committed for a specific time period or until certain milestones are met. Investors like to use them when working with start-up teams. Customary vesting schedules are between 3-4 years for most CEO’s.

We’ve decided to escalate ours because we don’t imagine that we are necessarily the right people to be able to scale with the company and would like to be able to have our full shares when it is time to change leadership. My partner and I would much rather get the company to a point where someone else can take over and run the show while we make money in our sleep. I would argue that should be the goal of most founders.

Steve Blank wrote a recent blog post about the role of a founding CEO is to find a repeatable and scalable process. If they do that they should get all their shares. Then the board can hire someone that can take it to the next level. We’re just planning for that in case our investors don’t have as much foresight as Mr. Blank.

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