Vesting Ownership/Shares, The Golden Handcuffs?

As your company grows bigger it will require more manpower to keep it going.  When you start having more tasks than you can complete alone, you either need to hire employees, outsource the work, or bring on additional partners for a percentage of your company.   

If you choose to bring in partners into your company there is a way of distributing equity that you might not have heard of.  I was not aware of it until about a year ago and it was an interesting concept, a very simple one and an extremely powerful one.  Sometimes venture capitals will refer this as placing the  “Golden Handcuffs,” on the owners.  It is called vesting owernship, or vesting shares in a corporation.  

Instead of bringing on a new partner into your corporation and giving them their full percentage, say 20% upfront.  You can now vest the shares overtime over a specific period of time.  For instance you may choose to vest to your partner 20% equity in your company but it is vested over a five year period. 

So the partner now will only receive their full 20% equity after the five years of work are put in accordingly.  You can see how this can become very powerful, and it is just good business.  When venture capitalists invest millions of dollars into a startup company they will sometimes vest the shares to the people running the company to make sure they stay in, they put the “golden handcuffs” on and make sure their people are doing the job right.

This concept isn’t because you do not trust your partners; it is just that as a world class entrepreneur you and your team have to have tremendous dedication and focus to do one million dollars a year in sales.  Vesting ownership makes partners earn their equity in the company.  If you had a partner who agreed that they would get their shares vested overtime and they left a month later, they would not receive their full share because they left early. 

I bring this up because I’m going to be currently vesting ownership to other partners to help build a company to one million dollars a year in sales.  If you were to take a look at my specific situation, I have invested thousands of dollars into my startup, and over 6 months of time, I work on it full time.  For me to bring on another partnership and just give away the percentage up front is to risky, because I’ve already put in 6 months I will vest the ownership to the other partners overtime to make sure everything goes accordingly. 

The last thing we want when trying to build a world class company is to loose your partners, and then even worse to loose your partners when they still own a large percentage of the company and are no longer working on it.  This is why vesting is important, and this is why Venture Capitalists use it.  Now you know of vesting ownership, a powerful concept you can leverage in your business, for when you shoot for one million dollars a year in sales.