What is a Vesting?
Vesting
Vesting is the process by which founders and employees earn the right to own their allocated stock options or shares over a period of time.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring Vesting is critical for managing long-term cap table health and alignment during employee equity plans and founder alignment agreements.
Detailed Deep Dive
Vesting is the process by which founders and employees earn the right to own their allocated stock options or shares over time. Standard vesting schedules span four years, meaning equity is earned gradually rather than upfront. Vesting protects the company by ensuring that if a co-founder or early employee leaves the company early, they do not retain a large ownership stake without having contributed long-term value.
Frequently Asked Questions
Q:What is the standard vesting schedule for startups?
A four-year vesting schedule with a one-year cliff, meaning equity is earned monthly or quarterly over 48 months after the first year.
Q:Why do founders vest their own stock?
To align incentives and protect the company. If a co-founder leaves early, the unvested shares return to the company rather than leaving with them.
Quick Facts
- CategoryLegal
- Key ApplicationEmployee equity plans and founder alignment agreements
Coverage Trend12 Weeks
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