Ask HN: Additional vesting period after 5 years

[paskster]

My co-founder and me founded a company about 9 years ago. Originally we had a 5-year vesting schedule, so now the vesting period is long over. Two years ago I started to only work half-time. The main reason for working less is a burnout-episode I experience about two years ago. We ensured that he gets double the pay. But we agreed, that we would also talk about our shares again and find a fair solution to rearrange or shares.

Does anyboy here have experience with this? I think it is fair to honor the fact that he works more, but I am not sure how.

Let me give as much data as possible:

- We started the company 9 years ago.

- We originally had a 5 year vesting schedule, that is now done.

- One of our investors owns a single digit percentage of the company, the rest is evenly divided between us two.

- The company has revenues in the (low) double digit millions and profits in the (low) single digit millions.

- Our company has been profitable for the last 8 years.

- It is very hard to estimate the current risk of the company. Corona was tough for us, but we came back stronger than ever. At the same time we sill have a lot of risk because of regulatory environments.

- My co-founders works more than 60 hours per week for the company and earns a low six digit yearly wage.

- I work about 20 to 30 hours per week for the company and earn half of this.

- My co-founder has a lot more responsibilities and a lot more stress than me. He basically runs the whole company, while I help out with special projects.

- Last two years were especially stressful and my co-founder did an outstanding job.

- I think if would have devastating effects on the success of our company, if my co-founder would stop working full-time.

We thought about three possible ways: - Give my co-founder about 10 % of the yearly profit in addition to his wage. - Give my co-founder additional bonus depending on yearly revenue growth - Transfer some shares of mine to my co-founder on a yearly basis

I would love to hear examples on what people think is "fair".

[pg_1234]

Think of you the owner and you the employee as 2 separate people. Same thing applies for your co-founder.

If you cease to work as an employee it has no bearing on vested shares held by "you the owner".

If your co-founder is considering leaving (as an employee) the share owning entities (which include "you the owner" and "co-founder the owner") need to decide how much (money from share sales or actual shares) they are willing to part with as added compensation so as to keep your co-founder on and protect the value of the remaining shares they hold.

Increased compensation to your co-founder as a employee should come proportionally from all shareholders (as it would in a dilution) as it is a negotiation between an employee and the company as a whole.

It is best not engage in a deal whereby employees extract compensation from specific shareholders, as, however well intentioned that starts out, it can too easily become a pattern of extortion (or a means to seize ownership).

[andrewfromx]

Since the vesting is done you own your shares and could work zero hours and still be entitled to them. The hard work you did over the 5 years as they vested means something.

But, if you want your co-founder to like his situation and work hard to make the company keep going I see this as like doing another round.

You need to raise X and valuation Y and dilute yourself accordingly. i.e. the company is in crisis because one of the co-founders is sort of leaving. To make up for that, raise some capital. Figure out the amount needed to raise and then work backwards from that number.

[paskster]

Thanks. But we do not need to raise any money. As I said, we make single digit millions (in Euro) per year in profit.

Do you have any other ideas? Or did I misunderstood you?

[andrewfromx]

you misunderstood, you are not actually raising money, you are picking a number as if you were so you can agree on dilution. What would be a 409a valuation of your business? Say it's 100 million. How much extra cash would the business need to replace you? Say it's 1 million? I'm just guessing here but I think there is a math formula that can make it seem very standard and fair.