Jun 11 2007 by Jason

Do Venture Capitalist Like To Change Pre-existing Employment Contracts?

Q: You’ve spoken at length about vesting for founders and key employees in your term sheet series. I was interested on your take concerning pre-existing employment contracts in which vesting terms and stock ownership has already been agreed upon by the Corporation and Employees including founders?

A: (Jason).  What VCs really want is to make sure that founders and key employees are properly incentivized to make the business a success.  For instance, if the stock awards were already vested, it’s probably that a VC investing in the company would want to reset or impose vesting restrictions on the prior awards.  Perhaps, the VC would want to award additional grants subject to vesting, etc.. to achieve the same result.  It all depends on the cap table dynamics.

Another set of terms that a VC may want to change at the time of investment are overly-generous severance provisions and make clear that all employment is at-will.

Other than that (assuming that cash compensation is not out of line), VC’s normally respect prior agreements.