Founder Agreements and Vesting: Six Things to Do on Day One

Many startups postpone the partners' equity agreement saying 'we are friends anyway'. Yet investors want protection from the very start against the risk that one of the partners leaves six months later and takes half the company's shares. Below are the most frequent legal recommendations of Çimlen mentors. This article is general information; consult a lawyer for your own situation.

1. Put the shares in writing

A verbal agreement is not evidence when a dispute arises. When forming the company, or right after, document the share ratios and partners' roles in a written shareholders' agreement.

2. Apply vesting

Vesting means a partner earns their shares over time. Monthly vesting over four years with a one-year cliff (a partner who leaves before the first year gets no shares) is a common model. It sits in the agreement as a clause nobody likes but everyone is protected by.

3. Assign intellectual property to the company

Sign an agreement that assigns the software code, trademark, domain name and designs from the founders to the company. Investors are likely to ask about this assignment first.

4. Define exit rules

If a partner leaves, what happens to their shares? Should the company have a buy-back right, and at what price? Writing this down at the start solves the argument without leaving it to a legal process.

5. Create an option pool

Before promising shares to the first employees, think about an option pool of roughly 8-12% of the post-investment company. Our dilution calculator shows the effect of this pool on your founder share.

6. Simplify decision-making and contracts

Which decisions need unanimity and which a majority? Write the agreement in language everyone can understand.

How do we work at Çimlen?

Startups in our programmes benefit from the discounted services of partner law firms and template documents. Teams that complete these six items before entering an investment round finish the process about two weeks faster on average.

Situations investors shy away from in a cap table

• Former partners who have left the company but still hold large stakes
• Adviser and employee shares handed out on verbal promises
• Unequal ratios among founders whose reasons are not in writing
• Source code kept in a founder's personal account or device

Each of these problems can extend an investment round by weeks or lead the investor to lower the valuation. A one-hour meeting with a lawyer early on costs far less than months of later negotiation. In our programmes we provide participants with this first meeting.