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What should a startup do when the founder is fully vested?

If a founder is working without equity vesting, it probably means the company’s employees are too, and that’s a problem, says Maynard Webb.

What should a startup do when the founder is fully vested?
[Source illustrations: vladwel/iStock; a_Taiga/iStock]

Editor’s Note: Each week, Fast Company presents an advice column by Maynard Webb, former CEO of LiveOps and the former COO of eBay. Webb offers candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at dearfounder@fastcompany.com.

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Q: I have been running my company for six years, and I have been fully vested for two years. Should I ask for more stock?

—Founder and CEO of an education company

Dear Founder,

This is a big question.

You have been working without any equity vesting for two years. The fact that so much time has passed is not ideal. This situation should have been surfaced earlier. But it certainly needs get addressed now. I imagine that you are not the only one in this situation; it may be impacting the people who work at your company as well.

I understand that when you are starting a company thinking about what happens four years into the future sounds like an eternity. But if you don’t have a process for this, and you leave people fully vested and without any new stock grant, they will get antsy. They will look for you to re-up their grant, or they will leave with their vested stock and join another company that is offering that opportunity.

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One solution to consider is a “refresh grant.” Big publicly traded companies have annual refresh grants. This is especially important as most public company executives get the majority of their compensation in stock. The further along your company goes in its evolution, you’ll find that there’s a standard way to structure this process. But for now, as a startup, you will have to build this system for your company and for yourself.

Now, here’s the truth. Venture capitalists don’t always like to implement refresh grants at startups because they believe that founders should be all in. Of course, I also believe that founders should be “all in,” but we need to be practical here. Founders have bills to pay and they also need to be compensated for opportunity costs. After all, if you weren’t here, you could be somewhere else and getting paid.

The fact that the CEO is uncovered makes me concerned that other key people on your team are uncovered. Take a look at all your people and review their vesting schedule. You can’t leave your best people uncovered.

Given where you are now, and that you need get this addressed, I recommend that you identify a board member to discuss this with and ask if they are willing to socialize this idea with the rest of the board and advocate on your behalf. You will then need to have a discussion with the entire board, and it will go more smoothly when no one will be taken by surprise. Have that conversation unemotionally and ask the board for their help solving the problem. (Generally speaking, founders should do this coming out of raising an investment round—that would be a more optimal time to implement this process.)

You might feel some injustice about the situation, but remember, you didn’t bring it up. So, now it’s time to get to work fixing it. You deserve a grant that is indicative of the work you have done for the past two years and the value you will contribute going forward.

Use this opportunity to institute a process to solve for the immediate as well as what will happen going forward. Do you want to institute another four-year time frame, or would you like to change the vesting cycle? Most importantly, implement a review cycle so you can address this annually.

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I know this is difficult at this point, but this is a muscle that has to be built, not just for you, but for the team. Once you have this practice underway it will become easier in the future.

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