👋🏾 Hi friends!

It’s good to get a win now and then in life and, after much lobbying from various groups, some of which I have been part of and inputted into, it looks like the government is going to reverse the pretty myopic decision to increase the thresholds to angel investing in the UK.

I certainly got on my platform, such that it is, and hopefully made my voice heard, if you missed the article I wrote for the Standard, you can find it here.

But obviously the news isn’t about any one person, it’s a win for the tech ecosystem and especially for female and minority investors as well as the companies they back. It’s great to see that reason won the day here.

You can read about the reversal here:

I’m well underway writing about all the things I’ve learned from the last couple of decades as founder, CFO and CEO, so sign up for early access to Off Balance – The Book and feel free to share with anyone else you think might enjoy it 😄.

Now let’s get down to business…

In this weeks Off Balance, I’ll be chatting about:

🎙️ Massimiliano Magrini – Founding Partner of United Ventures on Nothing Ventured.
⏰ Vesting and Reverse Vesting Explained

From launching Google Italy to launching his own fund…

I sat down with Massimiliano Magrini, Founder and Managing Partner of United Ventures, a multi stage fund based in Milan and Rome, investing in founders and startups from base camp to summit. He is the author of Fuori dal Gregge (Away from the Herd) where he explores the nature of startups and their relationship with large companies, the digital revolution and its consequences alongside the role of Venture Capital and inclusive and meritocratic organisations and systems. Prior to founding United, Massimiliano was Country Manager for Italy for first AltaVista and then Google.

In this wide ranging conversation, we talked about:

➡️ Launching Google in Italy just 4 years after the company was founded.

➡️ How search engines proved the value of putting tech into the hands of consumers but were never intended for the end user.

➡️ Why all markets outside of the US are exporters of technology.

➡️ How the changing attitudes to globalisation are impacting the venture ecosystems.

➡️ Why you cannot be an island, all ecosystems need to be connected.

➡️ How serendipity leads to innnovation.

➡️ Founder DNA and how Massimiliano captures this in his book, Fuori dal Gregge (Away from the Herd).

Check out the episode on YouTube, Spotify, Apple or wherever you get your podcasts and don’t forget to rate, subscribe and like 💪🏾

Check it out and let me know what you think!

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Now let’s get into it.

Off Balance

I struggle with people who suffer from the Dunning-Kruger effect…

There’s a conversation going on in one of my whatsapp chats where someone has received a message from an individual who is convinced of his knowledge even though it’s demonstrably (and googlably) disprovable.

So let’s talk about vesting.

When you Vest, is that always Best?

Most people are aware of standard vesting which is where your shares (or more likely options) vest (become acquirable) on the completion of some milestone.

Typically this milestone is time based as follows:

➡ You are issued say 1,000 options day 1.

➡ 25% vest on a one year cliff.

➡ The balance vest equally on a monthly basis over 3 years.

This means that of the 1,000 options, you can’t exercise (acquire) any of them for 1 year.

At the end of the first year, you have the option (the clue is in the name) to acquire 250 of them, but the balance 750 remain untouchable.

Instead, from the end of the first year, approximately 21 shares vest every month and become available for acquisition.

What this means is that your options to acquire equity in the business you’re working with is tied to the amount of time you work in that business.

Often, there will be an accelerated vesting clause if the company exits before the vesting period has ended allowing you to exercise all your options on an exit and hence participate in the success of the business.

Occasionally you might see milestone based vesting, often the case with sales people, where options vest based on a particular event (achieving x sales in a quarter for example).

Most companies stick with the relatively simple time based vesting.

The one that most people aren’t aware of is Reverse Vesting which can have considerable impact, especially to founders.

When an institutional investor comes into the business (for example a VC), they may include a reverse vesting clause as part of their terms and is predominantly time based.

This means that a founder who starts with 10,000 shares and a 4 year reverse vesting clause can only keep those shares if they stick around for 4 years.

If they decide to leave the business after, say, 2 years, then 50% of their shares would be clawed back.

This is to protect investors from co-founder relationships going sour, or founders leaving the business early and carrying a large percentage of ownership and voting rights.

On their departure, if they retained this ownership, the cap table would have a lot of ‘dead’ equity on it, i.e. shares issued to someone who has not fulfilled sufficient enough an obligation to the company to warrant having them.

It seems unfair and a lot of founders resist, especially if they have already spent several years building their business. But it makes sense from the investor perspective to ensure they don’t have a key man risk that causes them problems in the future.

Hope that clears that up 🙂

As always, my office hours are open, if you’d like to chat about this or anything else, just grab some time 😊.

I hope you found Off Balance #29 useful. As always, I’d love to get your feedback and understand the sort of topics you would love to hear about.

Just hit reply to this mail or drop me a line at [email protected] and let me know 😊

🚀And that’s a wrap for this edition of Off Balance – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

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That’s it from me so until next time…

Stay liquid 🙂

Aarish