vesting
Founder Vesting Explained
Founder vesting means you earn your equity over time instead of owning all of it on day one. The usual setup is four years with a one year cliff. Yay, another piece of paperwork. But it is an instrumental aspect in establishing the trust between co-founders, keeping everything fair, whether it's you that walks away or your co-founder.
It happens more than we would like to admit. You hand someone equity, everyone's excited at first, and six weeks in one person stops showing up while the other is left doing all the work. Whichever side of that you end up on, it's not a nice spot to be in.
It's definitely tempting to skip vesting on a first project, it can feel awkward, but it shouldn't, all you're asking for is some assurance that the person will stick around. It can often feel like planning or preparing for failure before things have even started but it's one of those things you may quickly come to regret if you don't consider it.
What a vesting cliff is
A vesting cliff is a period where you earn nothing. On a typical four year schedule with a one year cliff, you get zero equity until you've been around for twelve months. Hit month twelve and a full quarter of your shares vest at once. After that it vests monthly for the remaining three years. Leave in month eleven and you walk away with nothing.
Before you even get to vesting you need to agree the split itself, which is covered in how to split equity between co-founders. Vesting is the layer that protects whatever split you land on.
Why the one year cliff matters
There are a couple of reasons the one year cliff is worth keeping. Firstly, the first year is where most co-founder splits happen; people realise they want different things, or the money runs out, or someone gets a job offer they can't turn down. The cliff means someone has to still be around at month twelve before they own a real piece of the company. Secondly, twelve months and then monthly is clean and easy to explain, and you want your co-founder to understand exactly what they're signing, not to feel like something was slipped past them.
What about someone who has to leave?
But what happens when someone good has to leave? Let's say a co-founder works hard for ten months and then has to step away for a family emergency, something with nothing to do with the company. Under a strict cliff they get nothing. They did the work, and that's the part that doesn't sit right. So keep the one year cliff, but put an acceleration clause in writing for the cases that are clearly outside someone's control.
Put it in writing before you start
None of this works as a handshake. Agree the vesting terms and write them into a founders agreement before any real work happens, while the company is still worth nothing and the conversation is easy. Vesting only really works when both people understand it and both people are on the same terms, including the person who started the company. Bring it up in the first week, before there's anything worth fighting over.
Frequently asked questions
- What is a typical vesting schedule for founders?
- Four years with a one year cliff is the common standard. You earn nothing for the first twelve months, then a quarter of your shares vest at the one year mark, and the rest vest monthly over the remaining three years.
- What does a one year cliff mean?
- It means you earn no equity at all until you've been with the company for a full year. If you leave before month twelve you walk away with nothing. At month twelve a quarter of your shares vest at once.
- Should you put your own equity on a vesting schedule too?
- Yes. Vesting only feels fair if everyone's on the same terms, including the person who started the company. Putting your own equity on the same schedule is the clearest way to show a co-founder the deal is even.