Vesting
Also called: Founder Vesting · Vesting Schedule · Cliff Vesting
Vesting is the process by which equity is earned over time rather than owned outright from day one. Unvested shares are typically forfeited or repurchased if the holder leaves early, protecting the company and remaining founders from a departing holder keeping a full stake.
In more detail
A common structure is four-year vesting with a one-year cliff: nothing vests until the first anniversary, at which point a quarter vests at once, with the remainder vesting monthly or quarterly thereafter.
For founders, vesting is counterintuitive but protective. Without it, a co-founder who leaves after six months retains their entire stake permanently while the remaining founders continue building the value that stake represents.
Investors almost always require founder vesting as a condition of funding, and frequently reset it at the round. Having a sensible schedule already in place is a meaningfully better negotiating position than agreeing one under time pressure during diligence.
Two founders split equity equally with four-year vesting and a one-year cliff. One leaves at month ten. Having vested nothing, their shares return to the company — leaving the remaining founder with a clean cap table rather than a 50% absentee shareholder.
What our lawyers check
- Whether vesting exists at all, and the schedule and cliff length
- Good leaver / bad leaver treatment on departure
- Acceleration on a change of control, and whether it is single or double trigger
- The buy-back mechanism and how departing shares are valued
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
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