If you are reading this, you’re probably up for that 7+ year commitment, assuming you’re fortune enough to get there.
>> But what about your prospective co-founders?
Are you all sufficiently committed enough to make it in SaaS, over the extended term? You guys can talk about it. And say all the rights things.
Here’s the thing: do you know for sure? As Mark Suster recently wrote, the #1 think founders privately tell him is they got this wrong. Mark talks about getting vesting right, getting equity ratios right, etc. etc. All good stuff. But it’s nuanced. I want to simplify.
So I’ve got a simple test for you. For you and your co-founders in SaaS at least, do this with your stock:
- A 5 year vesting schedule (not the traditional 4), with
- A 1 year cliff starting 12 months after you close seed funding, or launch of MVP — whichever comes later. (I.e., if you leave before those 12 months, you leave with 0 shares. Zero).
- No vesting at all for all the hard work you’ve already done prior to that cliff. None.
- With full acceleration / 100% vesting in an acquisition.
Ok, what does this do? Well, it will force you guys to have an honest conversation. Because it’s perfectly aligned with the 7-10 year journey in SaaS. With the fact that there’s no tornado, no viral explosion in SaaS. There’s not going to be any Instagram insta-hit. That’s there’s zero value in SaaS until you’ve at least built a real business, with real customers.
>> If your co-founders all agree to this, intuitively and quickly — including yourself, no exceptions — I’d argue you’re on the right path, as a team. And if for some reason someone later then doesn’t work out, and steps off — all or most or at least enough of their equity will come back in the right ratio relative to the journey.
[Note the acceleration in acquisition won’t really matter too much — all this can and will be renegotiated in any acquisition. But it doesn’t hurt and will make you feel better, that if for some reason it’s out of all of your hands — you’re no longer in charge of the journey, because you’ve been acquired — you at least have nominal protection then.]
If you can’t all agree to this. To take the modest risk inherent in this schedule, to the compounding, to the longer-term journey … Then it just isn’t going to work out, as a team.
>> In that case … Fix it now. This simple test will likely ferret it out, if your team isn’t committed enough for SaaS.
Anyone that fails it should move from founder status to early employee, with commensurate economics.