Ask HN: Unorthodox Equity Arrangement?

by sideway on 6/19/2023, 9:04:29 AM with 6 comments
Hi all,

I’ll soon be joining a small 1yo startup as the CTO and the CEO suggested the following equity arrangement:

- 3y vesting period, 3% per year - If I leave the company on the 4th year, the percentage will start reducing linearly until the 10th year, going down to a minimum of 5% (unless there is an exit event).

Keep in mind the following:

- We’re both first-timers in these roles (CEO / CTO). - He’s not coming from the business world. - We’ve known each other since forever and he’s not trying to screw me over; we are honest with each other on what we do or don’t know and this is definitely something we are not knowledgeable about. His reasoning is that the work between year 4 and 10 may be way more significant than the one we’ll do together in the next 3 years and that 9% is too generous to be given away in 3 years.

1. Is this pattern something you’ve heard before? If yes, how is this type of arrangement called? 2. Does it make sense? Any questions I should raise with him?

Thank you in advance.

  • by HelloNurse on 6/19/2023, 10:08:39 AM 

      >  We’ve known each other since forever and he’s not trying to screw me over
    ROTFL; if your mindset is that your cofounders might be "too generous" you are already being screwed.

    These terms seem to presume that you should stay for ten years or more because 9% of the company in 3 years will be worth less than 5% in ten years, i.e. an extremely successful growth pattern.

    This is not only more recklessly optimistic than usual: it's unfair to you because you are giving your shares to your cofounders in exchange for, apparently, nothing.