What it is
Vesting means equity is earned gradually rather than granted all at once. If someone leaves early, they keep only the vested portion; unvested options typically lapse, while unvested restricted shares are typically subject to repurchase by the company.
Facts
- The standard schedule is 4 years with a 1-year cliff.
- A cliff means nothing vests until the first anniversary; at 12 months, 25% vests at once, then monthly thereafter.
- Founders typically use reverse vesting on their own shares, protecting the company if a co-founder leaves.
- US founders receiving restricted stock may need to file an 83(b) election within 30 days, which can save significant tax later.
Who it's for
All founders, and any startup granting equity to co-founders, employees, or advisors.
How it helps you
Vesting protects the company and remaining team from a founder or employee who leaves early walking away with a large, unearned equity stake.
Caveats
For founders receiving restricted stock, missing the 30-day 83(b) filing deadline can create a large tax bill. Founders often forget to put vesting on their own shares until investors demand it.
Conclusion
Vesting keeps equity in the hands of people who stay and build; use the standard 4-year/1-year-cliff schedule and, if you receive restricted stock, file your 83(b) on time.
