Earnout + Vesting

Oct 13, 2024

An earnout in the context of Affihub can be integrated into a vesting schedule for a co-founder by linking the co-founder’s equity vesting to the achievement of specific performance goals or milestones, such as revenue, user growth, or market penetration. Here’s how you could structure it:

Key Components for the Earnout in the Vesting Schedule:

Milestones or Goals: Define clear, measurable objectives that the co-founder must achieve to earn their equity. For Affihub, these could include:

Hitting a certain revenue target (e.g., $500K in annual recurring revenue).
Achieving a specific number of active users or clients.
Launching key partnerships or product features by a certain deadline.

Equity Vesting Linked to Milestones:

Instead of traditional time-based vesting, link the co-founder’s vesting to performance milestones.
For example, the co-founder could vest 10% of their equity upon reaching $100K in revenue, another 10% after hitting $500K, and so on, up to a total percentage based on the agreed goals.

Time-Based Vesting with Earnout Boost:

You could combine both time-based and milestone-based vesting. For instance, a portion of the equity (say 50%) can vest over a typical 4-year schedule, but the other 50% vests based on the earnout/milestone performance.
The earnout structure provides extra incentive by offering accelerated or bonus equity if specific goals are hit ahead of schedule.

Cliff and Continuous Vesting:

You can implement a cliff (e.g., 12 months) where no equity vests until the co-founder achieves the first milestone (like the first major revenue goal). After that, the remaining equity could vest gradually over time or in larger chunks based on further milestones.

Contingencies:

Outline what happens if goals aren’t met (i.e., the co-founder might not vest certain equity if milestones aren’t reached).
Consider if any part of the earnout is partially met (e.g., hitting 80% of a target might vest proportionate equity).

Example for Affihub:

Let’s say the co-founder is focused on user growth and revenue:

20% equity vested when Affihub reaches 10,000 active users.
30% equity vested upon reaching $1 million in gross revenue.
The remaining 50% vesting over a 4-year time period, with a cliff in the first year.

This structure aligns the co-founder’s interests with the success of Affihub, providing a strong incentive to meet key company objectives while ensuring they are tied to the company’s long-term growth.

Would you like to dive deeper into setting the specific goals, or refining the balance between time-based and milestone-based vesting?