Starting a company? Thinking of who should be your co-founder? Know what it means to bring on co-founders? Join Daniel Zimmermann, Partner at WilmerHale, to discuss the fundamental concepts around founder compensation and founder agreements. This is an excellent opportunity to take a deep dive into one of the most common legal mistakes startups make.

1. Co-Founders
Daniel Zimmermann
March 2016

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Who is a “Co-Founder”
 When did your co-founder start contributing
 When did your co-founder start full-time
 What is the individual’s contribution – past, present and future
 Have you gone through the “dating” process
 What are the roles of all the founders

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Who is a “Co-Founder”
This chart was generated via CompStudy's online reporting platform (2015, US)

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Founder Compensation
 A combination of salary and stock
 Varies based on contributions, industry, location, experience
of founders
 Majority of compensation is usually in stock

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Equity at Hire
This chart was generated via CompStudy's online reporting platform (2015, US)

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Base Salary (pre-funding)
This chart was generated via CompStudy's online reporting platform (2015, US)

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Founders’ Stock Alternatives
• Series FF Preferred Stock
• Class A Common Stock (voting)
• Class B Common Stock (non-voting)
• Dual-Class Voting Stock
• High-Voting Stock
• Super-Voting Stock

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Allocation and Dilution
Allocation:
 Beware of splitting stock ownership equally
 Eliminate discussion of percentages; Translate into share
numbers
– e.g. 2 million shares per founder if 2 founders
 Consider contributions to date and expected roles for the
future
– Go to Equity Calculator on launch.wilmerhale.com

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Allocation and Dilution
Dilution:
 Plan in advance for equity grants to be made to new hires
– Reserve option pool (10-30%)
 Dilution can be a good thing:
– Dilution typically necessary to bring in cash or human capital to
grow the business
– Smaller piece of bigger pie

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Vesting Provisions
 Founder stock should be subject to vesting
 Standard vesting schedule
– Variations: upfront vesting for “credit for services to date”,
milestone based
 83(b) elections
 Acceleration: single- or double-trigger
 VC expectations

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Lock-up agreements and secondary
sales
 Why do these sale restrictions matter?
 Lock-up
– Founder agrees not to sell shares during a specified period
following an IPO
– Typically 180 days
 Company Right of First Refusal
– If founder wishes to sell stock to a third party, company has the
right to purchase the stock on the same terms as those offered by
third party

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Voting Agreements, Rights of First
Refusal, Co-Sale Rights
 Typically put in place in connection with a financing
 Rights of Refusal in favor of other stockholders (investors)
after company
 Co-Sale Rights in favor of other stockholders (investors)

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Questions?
Contact:
Daniel Zimmermann | WilmerHale
950 Page Mill Road
Palo Alto, CA 94304 USA
+1 650 858 6036 (t)
Daniel.Zimmermann@wilmerhale.com
@DRZtweeter
Visit www.wilmerhalelaunch.com @WHLaunch