vesting
Also called: equity vesting, founder vesting, vesting schedule
Earning your shares in a company gradually over time, usually over three or four years, instead of owning them all on day one. If a founder or employee leaves early, the shares they haven't earned yet go back to the company.
Vesting means that shares are earned over time rather than owned in full from the start. A typical schedule spreads them over three or four years in equal monthly or quarterly parts, sometimes with a cliff: nothing vests until, say, the first year is complete, and then a year's worth vests at once.
For co-founders, vesting protects the people who stay. Starting a business is long, and plans change: someone gets a job offer, moves country or burns out. Without vesting, a co-founder who leaves after four months keeps half the company forever, while the other founder does all the work that makes that half valuable. With vesting, the leaver keeps the part they earned and the rest goes back to the company, where it can go to the person who does the work.
Vesting is best agreed at the very start, when everyone is optimistic and it feels like a formality; later it feels like an accusation. Put it in the founders' agreement together with the split, the decision rights and what happens when someone leaves. Investors and buyers look for it too: founders' shares without vesting are a risk they'll ask to fix.
Example
Nina and Oscar split GarageDesk 50/50, and their shares vest over three years. Suppose the shares vest in equal monthly parts, 50% / 36 ≈ 1.39% a month each.
If Oscar had left after 12 months, he would keep 50% × 12 / 36 ≈ 16.7% of the company, and the other 33.3% would return to the company. After 18 months he would keep 50% × 18 / 36 = 25%. Nina, who stays, keeps vesting until she reaches her full 50%.
Common mistakes
- Skipping it because you trust each other. Vesting isn't about trust; it's about plans that change.
- Agreeing it later. Introduced after a conflict, it feels like an attack; agree it on day one.
- No leaving terms. Say what happens to unvested and vested shares when someone leaves, including on good terms.
- Forgetting it at sale time. Check how a sale affects unvested shares before signing anything.