Entry guide to vesting

Vesting means earning ownership of shares gradually, rather than all at once.

Instead of being granted full ownership on day one, founders and employees earn their shares over a set period. Leave early, and you forfeit unvested shares—so only those who stay for the long haul end up fully owning their shares.

Why It Matters: Vesting protects the company. It stops people from getting equity without putting in the time. And it keeps the remaining founders from losing control if someone exits early. Additionally, it keeps the investors interested

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How vesting works

The standard vesting setup is four years with a one-year cliff:

• Four Years: Full vesting happens over four years, so after four years, you own 100% of your shares.

• One-Year Cliff: No shares vest in the first year. If you leave before one year, you get nothing. After that, shares vest monthly or quarterly.

Example: If you have 20% equity on a four-year schedule, you earn 5% per year. After one year (the cliff), you’ll have 5%. Each month after that, you earn a bit more until you hit four years and own the full 20%.

Vesting for new founders

For founders, vesting creates alignment. It ensures that every co-founder’s stake is tied to their commitment and contribution.

Without vesting, if one founder leaves, they keep all their shares—even if the rest of the team has to carry the weight. Vesting solves that by making sure everyone earns their stake over time.

Benefits:

• Prevents “free rides”: Founders don’t get rewarded for work they didn’t do.

• Keeps control: Remaining founders keep a larger share of the company if someone leaves.

• Encourages long-term commitment: Vesting incentivises founders to stay and build value.

• Investors are happy: Vesting ensures you and your core employees are binded to the cause, which makes investors happy(ier) to invest

Customising your vesting schedule

The standard four-year, one-year cliff schedule is common, but it’s flexible.

Consider these variations:

• Different Timeframes: Some startups use a three-year schedule for faster equity vesting; others may choose five years for longer-term commitment.

• Double Trigger Acceleration: If the company gets acquired and a founder is let go, all their shares vest immediately.

• Performance-Based Vesting: Rare, but some vesting schedules are tied to hitting certain milestones (do not recommend)

Vesting dictates when you earn your shares, not how much equity you’ll ultimately own. After you’re fully vested, the shares are yours—even if you leave.

But beware of dilution: When you raise funding or issue new shares, your percentage of ownership will decrease.

Practical tips for founders

• Get vesting in writing: Formalise your vesting schedule in a founder agreement.

• Revisit as needed: As your company grows, consider revisiting your vesting terms. Just be fair and transparent.

• Set up vesting from day one: Formalise your vesting schedule as soon as you create your founding team. Delaying this conversation can lead to future disputes.

• Consider reverse vesting for early hires: If you or any early-hire has already invested time or resources before formalising a vesting agreement, consider a reverse vesting structure. This approach allows them to earn back the shares

• Factor in future key hires: Set vesting schedules that allow you to keep equity available for future hires. Big talent is not cheap.

TL;DR: Vesting isn’t just a legal setup—it’s a startup insurance.

It keeps equity with those who earn it, protects against early exits, and builds trust. For new founders, having a clear vesting plan from day one can prevent headaches down the line and set the stage for long-term success.

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