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What’s The Most Likely Mistake You’ll Make Founding Your Company & How Can You Fix It?
I’ve worked with a lot of startups over the past few years, and, by a wide margin, the most common mistake founders make is not having a vesting schedule for their equity.
It’s not a mistake to have everyone 100% vested if all the founders stick around. However, that’s just not realistic. Of the companies I’ve worked with, over 50% of them have had one or more founders leave.
Making matters worse, most founders end up leaving within one year of starting your company. Then you have the problem of an ex-founder with a large chunk of equity that the ex-founder doesn’t deserve. Ignoring the unfairness (which is a huge issue) it causes a big problem for you:
Your company is uninvestable.
Let’s say you and your cofounder each have 40% equity in the company. There’s no vesting schedule on the equity, and your cofounder quits two months after the company starts.
Your ex-cofounder now owns 40% of the company. Worse yet, you’re trying to raise money. What are you going to do because no investor is going to invest in a company with 40% of the equity owned by an ex-cofounder. It’s what’s called dead equity.
