A fair vesting system for a bootstrapped side project

Giff Constable startups

A friend and I are bootstrapping a side software project (called Jotto), and we wanted a way to equitably share ownership of the project. We knew that we were not always going to be investing the same amounts of time and effort, and wanted to take that into account to prevent any negative feelings.

The standard startup vesting approach does not work well for this. A startup typically has a 4-year vesting period for options and restricted stock. Usually you get 25% of your stock/options after the first year, and the rest vests monthly after that. Thus if someone leaves after 2 years, they only get half of their equity. The purpose of this schedule is to only reward people who are putting in the work to build the company. Teams that do not have a sensible vesting schedule in place usually regret it (or combust).

The trouble with this standard structure is that it assumes team members are full-time or nothing, which doesn’t fit a bootstrapped side project.

Last year, someone tossed out the idea of a weekly vesting schedule where the pace of vesting is determined by the amount of work put in. I loved the concept. If I do no work in a week, I vest no shares. If I put in over 40 hours that week, I vest as if I was on that classic startup 4-year vesting schedule. If I’m in the middle, it gets prorated.

In our case, we created tranches for under 2, 2-10, 10-20, 20-30, 30-40, and 40+ hours.

While we didn’t cap the a maximum time period to vest shares (i.e. if you haven’t vested your shares within 10 years, you don’t get any more), it is an added step you can consider when and if you formally incorporate your project.

I created a Google spreadsheet that allows a team to set tranches of weekly hours invested, set vesting rates for those tranches, and then track vesting over a 4 year period.

It does require manual entry, but we have set up a weekly Slack reminder to make that a little easier. This method¬†also requires the honor system, but to that all I can say is, don’t go into business with people you don’t trust.

I’ve shared it online in case a copy¬†might be useful for your own side projects.