Founder Equity Vesting: What VCs Really Think
Do Venture Capitalists (VCs) avoid investing in startups where founders' equity is fully vested? The short answer is: it's more nuanced than a simple yes or no.
VCs Are More Flexible Than Before
While fully vested equity might have been a red flag in the past, VCs are now more flexible, especially in competitive funding rounds. Many pre-seed rounds using SAFEs often don't even address founder vesting.
Vesting Protects Founders, Not Just VCs
Vesting is often perceived as a VC requirement. However, it primarily protects founders from potential issues with co-founders who might leave early. It ensures a fair distribution of equity based on long-term commitment.
Imagine a co-founder leaving after 11 months, taking their full equity share. If you continue running the company for years, you'll likely regret not having a vesting agreement in place.
While VCs do consider vesting as a way to manage the cap table, its true value lies in protecting the founders and the long-term health of the company.
Further reading on founder commitment and equity:
- A Simple Commitment Test For You And Your Co-Founders (Updated)
- Dear SaaStr: Should Co-Founders Issue Themselves 100% Vested Shares at Founding, Or Vest Over 4 Years?
