An investor is offering to fund severance for three of my employees

[tixu1990]

Got an interesting proposition from an investor: they're offering to fund severance for a few of my employees.

Basically, if we run out of runway in 2-3 years and my employees have stuck around, they get guaranteed 3-month severance pay. If my employees leave sometime in the next 2 years, this money comes directly to the company instead.

Employees to exchange 3 months' worth of their stock options to the investor. They seem on board, they get a bit of downside protection and they've got most of their stock options still tied to the company.

Anything I'm missing? Would you do this deal?

[uberman]

What do your employees think of the offer.

[tixu1990]

Employees are on board. They see it as not having to worry about security in the worst case scenario where they'll have a small cushion. I like it if it means they're willing to fight until the very end if need be.

And if they quit anytime before year 2, they know that they'll get nothing. Money comes to the company. So they're kind of handcuffing themselves for at least 2 years

[destevil]

How are they guaranteeing it? is the set aside for severance part of the raise? is it diluting you further?

[tixu1990]

We closed the round two months ago. I just brought on 3 employees. It's not diluting me or costing me anything. My employees are exchanging a small portion of their stock comp for this guaranteed severance; investor will wire money into segregated escrow accounts that both me and the employees can see.

In the worst case scenario if the business fails and if my employee has been loyal then they get their 3 month severance. If they leave anytime in the next 2 years, they get none of that money. Money comes to the business instead