A vesting schedule outlines the fixed period in which employees vest their shares, or in other words unlock the right to purchase a portion of their equity. Most vesting schedules for an early-stage startup are four years, with a one year cliff, and monthly vesting after the cliff.
In this example, the employee “unlocks” 1/4th of their stock after one year, and 1/48 of their stock each month thereafter. If they leave after 1.5 years, they have unlocked the ability to purchase 9/24ths of their stock, and forfeit their unvested shares.
In recent times, Coinbase, Lyft and Stripe have reevaluated the traditional approach and have offered their employees a one-year vesting schedule. We expect this trend to continue.
Veto rights give a company’s board of directors the right to refuse to approve a proposal, thus preventing its enactment. A few potential scenarios in which a veto might be leveraged include:
- A proposal increase or decrease the amount of preferred or common stock
- The creation of any new series or class of shares
- The acquisition of another organization
- The sale, dissolution, or liquidation of the company
When negotiating term sheets it is imperative that you understand the rights that your potential investors expect—do not agree to terms that you do not understand or have not discussed with your council. The last thing you want is to have a buyer lined up for your company, or have an acquisition that you want to complete, and the board vetoes you.
A voluntary conversion is the exchange of a convertible type of asset, such as a convertible note, into another type of asset—usually at a predetermined price—on or before a predetermined date. It is voluntary, because the holder of the convertible type of asset has the ability, but not obligation to, execute the exchange.
Voting rights give board members the right to vote on topics discussed in board meetings, such as a funding round, the issuance of new stock, the initiation of mergers and acquisitions and more. Without voting rights, a board member has no say in the direction of the business or the residing management team.
A vulture capitalist is a type of investor that invests in or purchases distressed companies for profit. They typically purchase companies that generate revenue, but are on the verge of bankruptcy due to mismanagement and overspending. Once acquired, they start cutting costs through layoffs, a reduction in benefits, and a sale of exorbitant assets. Occasionally they also split off divisions of the business to recoup their initial investment and minimize their risk.