Vesting ties equity to time. It protects the company and every other shareholder if someone leaves early, and investors expect to see it for founders as well as employees.
The standard schedule
According to Carta, the most common setup is four-year vesting with a one-year cliff.1 Nothing vests in the first year; at the one-year mark, a quarter vests at once, and the rest vests monthly over the following three years.
Why founders vest too
If a co-founder leaves in year one with all of their stock, the remaining team is building value for someone who is gone. Investors will usually ask for founder vesting before they invest, sometimes with credit for time already served. Founders buying restricted stock should also file an 83(b) election within 30 days.
Acceleration
- Single trigger: unvested equity vests on one event, almost always an acquisition.1
- Double trigger: vesting accelerates only if there is an acquisition and the person is terminated without cause, usually within a set period. Carta notes this is more common because it keeps people in place after a deal.1
After someone leaves
Employees with options usually have a limited time to exercise vested options after leaving. Carta notes a 90-day window has historically been common, though many companies now offer longer periods.1
What diligence will check
- Vesting schedules for every founder and employee, matching signed agreements.
- Any acceleration terms, which an acquirer will price in.
- 83(b) elections for restricted stock.