AngeBlog by Basil Peters

The Corporate Structure - The Company Foundation

A company's corporate structure is like a building's foundation. If the foundation is flawed, it may not be immediately apparent. But as the structure grows, there is an increasing likelihood that the structural flaws will lead to a complete collapse.

This happens much more often with companies than with buildings.

Vesting

A good example is share and option vesting. Often young entrepreneurs will create vesting formulas that are fatal, genetic flaws in their newborn companies.

The failure mechanism for a flawed vesting formula usually goes something like this:

This happens all the time. But what happens even more often is that the original structure, including a fundamentally fair and equitable equity allocation and vesting formula prevents that type of thinking from reaching critical mass. People inevitably come and go. What's important is treating both the people that leave and the people that stay fairly and equitably.

Exit Strategy

Alignment on exit strategy is another element of structure that most entrepreneurs rarely think about until its too late. It can be the single biggest factor in determining whether entrepreneurs can actually realize on the value in their founders shares.

Even though the exit comes last, the exit strategy should be built into the structure of the company from its earliest days. The exit strategy is one of the most important considerations in determining the financing strategy and choice of investors.