Thursday, February 09, 2006

Threat Assessment

I was watching the most recent hair raising hour of 24 this monday and it provided a lesson that is very translatable to business. Terrorists have obtained canisters of military grade chemical weapons and plan to use them very soon. The only lead is a phone call that was picked up between the terrorists and an expert in these sort of weapons. Jack rushes to the residence of this man and captures him, only to find a 15 year old girl being held as a sort of sex slave by the increasingly despicable terrorist helper. Jack talks to the girl and tells her everything will be fine now, but the man requires a full pardon, transportation to another country, and given the girl back to comply. Now I've seen Jack break other prisoners in shorter order than he has available in this situation, even ignoring orders to do so, but that's another blog entry. Anyway, the girl, left free to roam around the apartment, and very lucidly grasping her dire probability of being handed back over to this man, finds a gun and shoots him.

Jack did not assess the threat in this situation properly endangering the mission. The girl acted fairly predictably and while she wasn't a direct threat, she became one by pursuing her best interests which were put at cross purposes with Jack and his mission.

The lesson here is to not ignore indirect threats even from sources that would almost never pose a threat. Always recognize the interests of every party you will encounter on the journey to your goal and act accordingly.

Sunday, February 05, 2006

Term Sheet Terms: repurchase rights == reverse vesting

When a company is incorporated the founders set up the ownership structure. This structure may include a vesting schedule for founder's shares. The reason for the vesting schedule is to assure future investors in the company that the founders are in it for the long haul. A typical vesting schedule that isn't too aggressive and the one I used in the case of my current company is to vest 25% up front and the remainder in 1/60 increments per month over the next four years.

When taking in institutional money, the new nvestors will assess the percentage of vested shares the founders have and may ask for a reset on some percentage of these shares. One way this happens is that they will add a "repurchase right" term to the term sheet which enables the company to repurchase a certain amount of the founders shares at a nominal price for a period. This number of shares will diminish over time, essentially creating a new vesting schedule for founders.

My advice is that if you know you will be taking in money, find a happy middle ground between something aggressive that will undoubtedly be reversed and a vanilla four year vesting schedule. Starting the company is certainly worth a chunk of up front vesting.

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