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Scott D. Levine | slevine@aegisps.com | Bio

It is my experience that the best way to align employees, align advisors, and people that are out there helping you grow your early-stage business is to tie their compensation, or at least some portion of their compensation, (perhaps the equity, or long-term economic portion of their compensation) to milestones. 

Oftentimes, employees say, “Well, you know, I am going to pay you equity every month, because I can’t afford to pay you cash.”  Putting the tax implications of doing that aside for a moment, what does that mean, in terms of alignment?  Does that incent everyone to help get to important milestones fast, or does it mean that the slower you get to the milestones, the more equity everyone earns?  Well, if there is no incentive to quickly knock down a milestone, the equity award loses its value (from the company’s standpoint).

It is our recommendation that you look at your company’s critical milestones, and say, “Well, when we get to this next milestone (e.g., technology completed, first customer, etc., our valuation story improves.  When we get there, whatever amount of equity you are receiving will vest- provided you are still working for us when we hit the milestone.”  What does this approach accomplish?  Well, it forces everyone to focus on the milestone.  It focuses everybody.  And so, everyone is thinking, “Well, since my equity vests when we get the technology completed, I better be doing everything I can to help get the technology complete.”  And then, by having the equity vest at that milestone, you can simply say, “If it takes us a month, or six months, or a year, it does not really matter, because the equity vests when we get to the milestone.”  This boosts everyone’s incentive and, when you get to the milestone, new ones can be set with vesting provisions.