Question 1

What is vesting, and what is a cliff?

Accepted Answer

**Vesting** means equity is earned **over time** rather than owned outright from day one. A **cliff** is an initial period during which nothing vests at all.

**The standard arrangement.** Four-year vesting with a **one-year cliff**:

**Nothing vests for the first twelve months.**

**At twelve months, 25% vests at once.**

**The remainder vests monthly or quarterly** over the following three years.

**What the cliff is for.** It protects the company from someone leaving after a few weeks with a permanent stake. Before the cliff, a departure means they leave with **nothing** — which is harsh and is exactly the intended effect.

**Why founders should vest too.** This is the part first-time founders resist and later regret. Consider two founders splitting equity equally, one of whom leaves after four months. Without vesting, the leaver keeps **half the company** permanently, while the remaining founder does all the work and can neither buy them out nor raise investment against a cap table with a large passive holder.

This situation is common, unfixable after the fact, and has killed companies. **Investors will insist on founder vesting** if it is not already in place, frequently restarting the clock — so agreeing it early is in the founders' own interest.

**The mechanisms.** For unissued shares, options simply vest. For shares already issued, the equivalent is usually **reverse vesting** — the shares are held but the company can buy back the unvested portion at nominal value if the holder leaves.

**Good leaver / bad leaver** provisions determine what happens on departure. A good leaver typically keeps vested equity; a bad leaver — dismissed for cause, or in breach — may lose more, sometimes including vested shares. **The definitions are negotiable and matter a great deal**; overly broad bad leaver clauses are worth resisting.

**Acceleration** clauses vest equity early on a sale. **Single trigger** vests on acquisition; **double trigger** requires acquisition **and** the person being terminated, which is the more usual and more defensible form.

General information, not legal advice.

Question 2

What happens when co-founders fall out?

Accepted Answer

Usually a slow deterioration rather than a single argument — and what determines the outcome is almost entirely what was agreed at the start, when everyone got on and nobody wanted to raise it. Why

Question 3

What is a liquidation preference?

Accepted Answer

The right of certain shareholders — almost always investors — to be paid first when a company is sold or wound up, before ordinary shareholders receive anything. It is frequently the single most

Question 4

What actually matters in a term sheet?

Accepted Answer

Far less than the valuation, and far more than founders expect. A term sheet is mostly non-binding, but it sets the terms everything else follows from, and the economic and control clauses matter

Question 5

What is equity dilution?

Accepted Answer

Your percentage of a company falling because new shares were issued — not because anyone took shares from you. Understanding that distinction is the whole subject. How it happens. A company issues

Question 6

Why is most startup advice affected by survivorship bias?

Accepted Answer

Because almost all of it comes from companies that succeeded, and the failures that did exactly the same things are not available to be interviewed. The classic illustration. During the Second World

Question 7

What is a cap table?

Accepted Answer

A capitalisation table records who owns what proportion of a company — every shareholder, every class of share, every option and everything that could become a share. What it contains: Every

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