I got burned by a partner once. He flaked out after just a few months, keeping a big chunk of equity while I did all the work.
So when I took on a partner for my latest venture (coming soon), I insisted on a partner pre nup. There are a lot of ways partnerships can go sour, and it’s tough to protect against all of them. Also, it’s a bit awkward to be talking divorce during your honeymoon. But better safe than sorry.
The core of our pre nup is a partner vesting mechanism. It works like this… Both partners start with slices of the equity pie. Let’s say we each get 50 shares out of 100 total, to keep things simple. Over the coming years, we’ll work hard to turn our respective equity stakes into something valuable. But we’ll have to earn our rights to that equity.
We’ll earn a bit more every quarter (three months), over a four year period. With four quarters per year over four years, there are a total of 16 vesting periods. So, we’ll each earn 50/16, or about three shares every quarter (we’ll make up for the rounding issue during the last period). At the end of the first quarter, we’ll each earn three shares. At the end of the second quarter, each of us will have earned a total of six shares. And so on, until we reach 50 each.
If one of us leaves to do something else, or otherwise stops contributing in a positive way (e.g. gross negligence) we’ll only walk away with the equity we’ve earned so far.
Suppose we’ve been working on the startup for 13 months, and we’re struggling. At that point, one partner wants to stick it out, and another decides to pursue other opportunities. The partner who leaves keeps four quarters of equity, or 12 shares. The other partner gets the remaining 38 shares. So now the partner who leaves owns 12 over 100 shares, or 12%. The partner who sticks around gets the remainder, or 88%.
Flake factor be-gone.