Deal Terms
Dead Equity
Equity held by individuals who no longer actively contribute to the company, creating misaligned incentives and cap table friction.
Dead equity refers to shares or options held by former founders, departed employees, or inactive investors who no longer add value to the company. This equity sits on the cap table consuming ownership that could otherwise incentivize current contributors. It's particularly problematic in early-stage companies where every percentage point of equity matters for recruiting and motivation.
In Practice
A departed co-founder still held 25% of the company despite leaving after 6 months. The dead equity made it nearly impossible to recruit a replacement CTO willing to accept the remaining option pool.
Why It Matters
Dead equity is one of the most common cap table problems VCs encounter. It creates resentment among active team members and complicates future fundraising and hiring.
VC Beast Take
Vesting exists to prevent dead equity. If you're not vesting founder shares from day one, you're setting a trap for yourself.
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