Page 1

They assume that no adverse events will change the composition of the team.

assume that their skills will remain as valuable to the startup as they are right now.

new firm founders indicated that their business ideas [had] changed between the
time they first identified them and the time when they were surveyed about them.”

Such adjustments can cause major changes in the obstacles that the startup faces,
the skills needed to address those obstacles, and thus the roles that each founder
(or perhaps a new founder or a nonfounder) will have to play in building the startup.

Page 2

Although the risks of this kind of outcome are real, teams often fail to address them
proactively. In my dataset, half of the teams had neglected to include any dynamic
elements (vesting, buyout terms, and the like) in their equity agreements,
sentencing themselves to the same risks faced by the Zipcar and govWorks.com
teams.

Page 3

A structured approach can also serve as a check on the natural tendency to

overemphasize tangible factors at the expense of intangible factors which may have
more impact on team dynamics and the success of the startup.

Page 4

Known-unknowns can be addressed by using contingent provisions that outline how

the equity split should change for various worst-case, expected-case, and best-case
scenarios.

Page 5

high-stakes equity-split negotiation is itself a double-edged sword

Page 6

(For this reason, time-based vesting has been derided—perhaps unfairly—as “paying
for a pulse.”)

Milestone-based vesting is one solution to such a problem, but it can cause its own
problems