Compensation at VC-Backed Companies

Fresh off the rousing success of their Term Sheet series, the guys at AskTheVC have begun tackling the issue of compensation at VC-backed companies.

This is must-read stuff for any entrepreneur in the process of raising venture capital, or who already has raised venture capital.

After all, who else are you going to ask if you’re getting screwed over? Your own VCs?

A few highlights from what’s been posted so far:

Compensation Before Raising Money: “Don’t be greedy on cash compensation. There is nothing that turns off a VC more than seeing a pre-revenue, pre-funded company where the employees are making market salaries…”

Deferred Cash Compensation: “Be careful about expectation setting here – while some VCs will respect this arrangement, if this deferred compensation number starts to grow, as a condition of the financing the VCs will often require some or all of the deferred comp to be converted into equity…”


Equity Compensation Terms: “The standard vesting terms for a venture-backed company are typically a four-year vest with a one year cliff. For example, let’s assume you are granted an option for 10,000 shares of stock as part of your compensation package. A standard vesting plan would have you vest 25% of your options (2,500 shares) after one year (“the cliff”) and the other 7,500 monthly over the next 36 months (or 208 shares / month)…”

What Percentage Will You Own at Exit: “The range is so broad as to be meaningless…”

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Structuring Venture Capital and Other Investments in India

Many U.S. and other foreign investors are evaluating alternatives for structuring investments into software development, business process outsourcing, drug discovery and other tech and non-tech companies based in India.

Here's a whitepaper from Fenwik & West, a Cali based legal firm covering 2007 update to Structuring Venture Capital and Other Investments in India.

The primary structures for investing in India are:

• Direct investment in an India company from outside India(usually through a Mauritius or a Cyprus subsidiary fortax reasons)
• Investment in a U.S. company with a services fulfillmentsubsidiary in India
• Investment in a Cayman Islands or Mauritius companywith a services fulfillment subsidiary in India
• Direct investment in an India company from outsideIndia through a venture capital fund registered with theSecurities and Exchange Board of India.

The primary business considerations in determining how tostructure such an investment are:

• Relative valuations in the U.S. and India capital marketsfor the type of investment in question, particularly aservices business;
• Ease of IPO exit including any currency exchangerestrictions, the impact of Sarbanes-Oxley in the U.S. andoverseas company listing requirements in India;
• Ease of acquisition by the likely set of acquirors as an exit-strategy
• Investor “comfort” with the limitations on preferenceshares under the India Companies Act of 1956, asamended (the “Companies Act”)

It also covers the IPOs, Company act, Mauritius Financial Services Commission strategy, Cyprus and other key areas. Download the paper here