Podcast
Questions and Answers
Under reverse vesting, what happens to a founder's unvested shares if they leave the company prematurely?
Under reverse vesting, what happens to a founder's unvested shares if they leave the company prematurely?
- The company repurchases the unvested shares at a predetermined price. (correct)
- The unvested shares are immediately transferred to the remaining founders.
- The founder retains all shares regardless of their departure.
- The unvested shares are forfeited and become treasury stock.
What is the most significant disadvantage of standard vesting for a founder?
What is the most significant disadvantage of standard vesting for a founder?
- The founder cannot sell their shares until fully vested.
- The founder forfeits all equity if they depart before the vesting cliff. (correct)
- The founder must purchase their shares at fair market value.
- The founder's shares are subject to dilution by later investors.
Why might investors be more inclined to implement standard vesting rather than reverse vesting agreements?
Why might investors be more inclined to implement standard vesting rather than reverse vesting agreements?
- It aligns founders' interests with short-term profitability and exit strategies.
- It mitigates the risk of founders leaving early with a substantial portion of the company's equity. (correct)
- It simplifies the cap table management and reduces administrative overhead.
- It allows founders to retain more control over the company from the outset.
What is the primary purpose of tag-along rights in shareholder agreements?
What is the primary purpose of tag-along rights in shareholder agreements?
Which of the following scenarios exemplifies a reserved right in corporate governance?
Which of the following scenarios exemplifies a reserved right in corporate governance?
How do 'Tag-Along Rights' influence the negotiation dynamics during a company acquisition?
How do 'Tag-Along Rights' influence the negotiation dynamics during a company acquisition?
What is the potential consequence of poorly defined 'Reserved Rights' within a company's foundational documents?
What is the potential consequence of poorly defined 'Reserved Rights' within a company's foundational documents?
In the context of vesting schedules, what does the term 'double-trigger acceleration' typically refer to?
In the context of vesting schedules, what does the term 'double-trigger acceleration' typically refer to?
How might 'Right of First Refusal' clauses affect a shareholder's ability to sell their shares?
How might 'Right of First Refusal' clauses affect a shareholder's ability to sell their shares?
Why is it important for founders to understand the implications of different vesting schedules?
Why is it important for founders to understand the implications of different vesting schedules?
Flashcards
Reverse Vesting
Reverse Vesting
The founder owns all shares upfront, but the company can repurchase unvested shares if they leave early.
Risk for founders in standard vesting?
Risk for founders in standard vesting?
If a founder leaves before the 1-year cliff, they get no shares.
Why Prefer Standard Vesting?
Why Prefer Standard Vesting?
It Protects investment, prevents dead equity, and ensures long-term founder commitment.
Tag-Along Rights
Tag-Along Rights
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Reserved Right Example
Reserved Right Example
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Study Notes
- Reverse vesting involves founders initially receiving 100% of their shares.
- In reverse vesting, the company retains the option to repurchase unvested shares if a founder departs early.
- In standard vesting, founders risk losing all shares if they leave before the cliff period concludes.
- Standard vesting is favored by investors as it mitigates the risk of founders exiting prematurely with substantial ownership.
- Standard vesting prevents founders from getting shares too fast.
Tag-Along Rights
- Tag-Along Rights serve to protect minority shareholders from being excluded in a sale.
Reserved Rights
- A major shareholder's exclusive right to veto a merger is an example of a reserved right.
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