George Babu completed his law degree and MBA at the same time as working as a co-founder of Rypple – AND he and his wife had a new baby at the same time.

Are you prepared to work that hard?

Rypple went on to be a great Canadian startup story and Babu has moved on to spreading his startup expertise as an investor at OMERS Ventures. Babu recently sat down at a Startup Grind Fireside Chat, hosted by Rebecca Kabaca at Aird & Berlis, to share a wide range of insights with founders.

In one highlight, Babu observed that “founder vesting” is a term of venture capital financing much more frequently demanded south of the border.

Founder vesting is a concept whereby co-founders receive equity up front, as is common, but if they leave the startup they forfeit a percentage of their equity. This is based on the premise that founders are issued shares not only for the formation of the startup, but based on the work they will put into developing it.

Not everyone can pull off the kind of demanding personal commitments that are part of startup life.

If you have a group of founders, vesting prevents those who leave the venture from profiting from the efforts of the founders who stay and continue to develop a startup.

There are a number of formations this can take, but founder vesting should include an acceleration trigger allowing vesting on a change of control if the company is sold. Four year vesting periods are common, but can be faster for tech startups. A milestone vesting schedule can also be useful.

There are many more highlights, the video is well worth the time.

The next Startup Grind Toronto Fireside Chat is with Michael Terpin on Nov. 4.

This is a guest post by Graham Topa is a Student-at-Law with Aird & Berlis LLP.

This post offers general comments on legal developments of startups, and is not intended to provide legal opinion. Readers should seek professional legal advice on the particular issues that concern them.

 

 

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