Vesting - any impact on raising angel? Know any good startup lawyer in Sydney? Thanks

[Hendro Wijaya]

Hi All,

 

I have questions with regards to legal issues.

 

Few things:

- We are now in a stage to register a company.

- Between founders, we have agreed on share of each party.

- At some point in future, we are looking to raise an angel round.

- To protect everyone, we would like to do it in 4 years vesting with 1 year cliff. We have agreed on this informally between founders in earlier days.

 

The questions are.

1. What is the impact of vesting on raising angel round in Australia? In Valley, this seems normal. We talked with one / two people here, and they said that will make it difficult for us to get funding because investors don't like it.

2. Know any lawyer that is experienced with startup legal in Sydney, yet not break the bank?

 

 

Thanks,
Hendro Wijaya

[David Jones]

1. I can't see why pre-defined vesting would be a barrier because its likely they (Not so sure about angel investment, but VC shareholders agreements will likely have founders vest) will want to override it with an entirely new (negotiated) terms.

2. No :) 
However, if the terms are simple it may not be too expensive (your best bet to keep costs down would be to trawl for an existing founders agreement then present it to the lawyer)

[Niki Scevak]

Hendro, on the impact of vesting on an Angel investor's perception, I
don't know what investors you have been talking to but any sane/
rational one will look at vesting extremely favorably. Their
investment is only protected with founder vesting (if one of you
leaves his/her stake is increased as the leaving founder's remaining
shares are cancelled)

It looks like you have the right time line (4 year with 1 year cliff)
but one word of caution: You can start the clock ticking now (that is
obviously to your advantage) but your first institutional round,
should you seek it, will likely try to force a reseting of the clock
on the vesting (they'll give you some credit but try to reduce say 2
years into 1 year of credit etc.).

More than anything else co-founder vesting will protect yourselves
from any unforeseen circumstances. For instance, see point 17 of
http://www.paulgraham.com/startupmistakes.html

20% of ycombinator startups have a founder leave for whatever reason.
You'd be silly not to have an orderly mechanism to allow a founder to
leave. Vesting also prevents you having to have a really awkward
conversation ("I'm still working yet we're 50-50 patners", "I'll sell
you my 50% for $X/no way $X is way too high/I can't afford to buy you
out/This other weirdo will buy it and you're now partners with him"
etc.)

Anyway if the angel investor is worried about vesting, I'd take that
as a signal to be very worried about them and would wonder if they are
a good fit to even invest in the business!

[Hendro Wijaya]

Thanks Niki for the answer.
It helps a lot.

-h

--------------------------------------------------
From: "Niki Scevak" <niki....@gmail.com>
Sent: Wednesday, November 11, 2009 9:42 AM
To: "Silicon Beach Australia" <silicon-bea...@googlegroups.com>
Subject: [SiliconBeach] Re: Vesting - any impact on raising angel? Know any
good startup lawyer in Sydney? Thanks

[Tagmotion]

Try Mark Simpson
http://www.sparke.com.au/sparke/people/mark_simpson.jsp

Brett Eagle
http://eagle-advisers.com/


Andrew.

On Nov 11, 9:52 am, "Hendro Wijaya" <hendro_wij...@hotmail.com> wrote:
> Thanks Niki for the answer.
> It helps a lot.
>
> -h
>
> --------------------------------------------------

> From: "Niki Scevak" <niki.sce...@gmail.com>

[Kim Heras]

Good info here, thanks Guys.

I have a quick question around vesting. I think it's still on topic.

Let's look at the following scenario:

- 2 co-founders (A & B), working on project for several years.
- Working product has been developed
- Organisational structure is partnership, i.e. registered business
not incorporated
- 1 co-founder (B) leaves and is happy to walk away with nothing
- remaining co-founder (A) wants to bring someone on as a new co-
founder (C)

Questions:

- If the business is incorporated are there any obvious issues with A
having no vesting period for her share, while C has a 4 year vesting
period with 1 year cliff for her share?
- If there are issues, how would you recognise prior time/effort spent
by A while still ensuring that you get the protection that vesting
offers A and potential investors?

Hope that's clear.

K

[David Jones]

IANAL but I can't see a problem if you both agree that the terms
upfront. Here are some extra thoughts:

1. You may want to get a specific release from "B" to have no claim over the IP.

2. "A" may have a problem valuing the company initially as you
transition from business to PTY with some IP: it may value the
business at a non-zero amount. That would be a CGT event on A.

3. My guess is that you should incorporate now as with "A" as single
shareholder, then "A" gifts any code to the newco. Then later issue
more shares to "C" with the vesting schedule.

d.

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