Designing the right equity structure from day one
Equity distribution among founders is one of the most critical decisions in a startup’s life. A poorly designed structure can generate conflicts, block investment rounds, or cause the premature departure of key talent.
Vesting models for founders
Vesting establishes that founders’ shares vest progressively, incentivizing long-term commitment and permanence.
Standard structure (4+1):
- Vesting period: 4 years
- Cliff: 1 year (if a founder leaves before, they lose all unvested shares)
- Monthly vesting post-cliff: Shares vest monthly during the remaining 3 years
Common variants:
- Accelerated vesting upon acquisition (single/double trigger acceleration)
- Differentiated vesting by founder based on contribution
- Reverse vesting for founders who already hold shares
Good Leaver / Bad Leaver clauses
These clauses determine what happens to a departing partner’s shares:
- Good leaver: Departure for justified causes (illness, retirement, mutual agreement). The partner retains vested shares, and unvested shares are repurchased at market value.
- Bad leaver: Voluntary departure without cause, dismissal for serious misconduct, or unfair competition. Shares are repurchased at nominal value or a significantly reduced value.
Anti-dilution protection for founders
In subsequent investment rounds, founders can see their stake significantly reduced. Protection mechanisms:
- Weighted average anti-dilution clauses — Proportional adjustment of the price per share
- Preemption rights — Right to participate in new issuances
- Reserved share pool — Reserve a percentage of the cap table for the team
- Pay-to-play — Require investors to participate in subsequent rounds to maintain their rights
Cap table: the essential management tool
A well-maintained cap table should reflect at all times:
- Distribution of shares among founders
- Stock options granted and exercised
- Pending convertible notes and SAFEs
- Voting rights and liquidation preferences
At A2 Estudio Legal we design equity structures that protect founders while facilitating investment. Book a call to review your cap table.