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3 takeaways: Legal snags and ecosystem growth strategies

@Adam

This post is also available in: Danish

Founders and investors gathered on Wednesday afternoon to welcome the legal experts from Highbridge, who had made the trip from Copenhagen to Aarhus. Here, the ecosystem got an introduction to the legal world in the form of the concepts of vesting and warrants.

The speakers shared their knowledge and their own experiences as founders to an engaged audience that was with them all the way.

If you missed the event, you can learn more about three of the key concepts right here:

What is vesting?

It takes blood, sweat and tears to found and grow a startup. Of course, all parties involved want a piece of the pie – but it shouldn’t turn into a fight.

Therefore, you should set expectations and establish some basic commitments from the start that will apply throughout the startup journey. This can be in the relationships between founders, founders and investors, but also between founders and employees.

Vesting is the key legal term that determines who earns what ownership – and under what conditions. Investors in particular look at the agreements when putting money into a startup. Because what happens to the ownership shares if one of the co-founders suddenly decides to leave the company?

Highbridge said that in most cases, they find that founders end up splitting up due to life’s many reasons. Therefore, it’s important to set some milestones in advance, for example, how much time you expect each other to be involved in the startup.

Especially for founders: Founder vesting

So why even think about vesting when you’re building a company, you might ask. That time, that grief. In practice, it’s just much easier to agree on things from the start – before disagreeing on strategy or being offered a well-paid job elsewhere: What are the consequences for a co-founder if they suddenly decide to leave the company?

It’s crucial to set expectations upfront and create a key person clause. Because if one of the founders leaves the company, the gap in manpower they leave behind needs to be filled.

This is particularly important when you are looking for money in an investment round, because investors do not like the fact that a large part of the ownership shares are placed with founders who are no longer active – outside the company. Because when investors evaluate a company, they look at future potential, not what has happened in the past.

Employees as co-owners: Warrant vesting

When you talk about warrant vesting, you are talking about employees (who are not founders) also being able to work their way to ownership in the startup. That way, they also get a piece of the pie if the company is potentially sold in the future.

Warrants can be a great tool to motivate employees towards an exit – especially if they could get a higher salary elsewhere. Issued correctly, warrants give employees the rights to get a share of the percentages when the company is sold, without having any real influence in decision-making along the way.

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