Vesting Schedule

Quick Facts

Standard: 4-year vesting with 1-year cliff

Cliff: 25% vests after first year

Monthly vesting: 1/48th per month after cliff

Acceleration: Single or double trigger on acquisition

A vesting schedule determines when founders, employees, or advisors earn ownership of their equity grants over time. Rather than receiving all shares upfront, recipients "vest" into their equity gradually, ensuring they stay committed to the company.

In Plain English

Vesting is like an equity layaway plan. You're promised 10,000 shares, but you don't own them all immediately. Instead, you earn them over time—typically four years. If you leave early, you forfeit the unvested portion. It protects the company from "free riders" who take equity and disappear.

How It Works

Standard 4-year vesting with 1-year cliff:

Year 1 (Cliff): Nothing vests until the 1-year anniversary
Year 1 complete: 25% of shares vest immediately
Years 2-4: Remaining 75% vests monthly (1/48th per month)
Year 4 complete: 100% vested

Example with 48,000 shares:

Month 11: 0 shares vested (still in cliff)
Month 12: 12,000 shares vest (25% cliff)
Month 13: 12,750 shares vested (750 more)
Month 48: 48,000 shares vested (100%)

The Purpose of the Cliff

The cliff ensures recipients demonstrate minimum commitment before earning any equity:

Protects against quick departures: Someone who leaves at month 6 gets nothing
Filters bad fits: Reveals if the relationship isn't working before equity transfers
Standard expectation: Investors expect to see cliff vesting in place

Common Vesting Structures

Structure	Cliff	Total Period	Common For
4-year, 1-year cliff	25% at year 1	4 years	Employees, founders
3-year, 1-year cliff	33% at year 1	3 years	Later hires
4-year, no cliff	Monthly from start	4 years	Senior executives
2-year	Varies	2 years	Advisors

Acceleration Provisions

Acceleration allows faster vesting when specific events occur:

Single-Trigger Acceleration

Vesting accelerates upon a single event—typically an acquisition. Controversial because executives get fully vested even if they stay with the acquirer.

Double-Trigger Acceleration

Vesting accelerates only if both conditions occur:

Change of control (acquisition), AND
Termination without cause (or resignation for "good reason")

Double-trigger is now standard because it protects employees without creating windfall payouts.

Typical Acceleration Terms

100% acceleration: All unvested shares vest immediately
12-month acceleration: Additional 12 months of vesting accelerates
50% acceleration: Half of unvested shares vest

Reverse Vesting (Founders)

When founders already own shares, investors often require reverse vesting:

Founders "already own" all shares but subject to company repurchase right
Repurchase right lapses over vesting schedule
If founder leaves early, company buys back unvested shares at original price

This achieves the same economic effect as forward vesting.

What Happens When You Leave

Vesting Status	Shares	What Happens
Vested	Yours	Keep them (subject to any repurchase rights)
Unvested	Company's	Forfeited or repurchased

For stock options, vested options typically must be exercised within 90 days of departure (or you lose them).

83(b) Election

For early-stage equity, recipients can file an 83(b) election with the IRS within 30 days of receiving shares:

Pay tax now on the (low) current value
Future appreciation taxed as capital gains, not income
Critical for founders: Missing this deadline can cost millions in taxes later

Negotiation Points

Employees should consider:

Cliff length (can sometimes negotiate to 6 months)
Acceleration provisions (especially double-trigger)
Post-termination exercise period for options
Early exercise rights

Companies should ensure:

All equity has vesting (including co-founders)
Vesting tied to service, not just time
Clear documentation of vesting terms
83(b) election guidance provided

Practical Takeaways

For founders: Always have vesting—even between co-founders. If a co-founder leaves at month 3 with 50% of the company, you'll regret not having vesting in place. Most VCs require founder vesting anyway.

For employees: Understand your vesting schedule before accepting an offer. Ask about acceleration provisions and the post-termination exercise period. And never miss the 83(b) election deadline if applicable.

Founder Vesting — Special considerations for co-founder equity
Cap Table — Where vesting schedules are tracked
Anti-Dilution Provisions — Other terms affecting equity ownership