Vesting
Why it matters
Vesting protects a company, and the people committed to it, from someone leaving early with a large stake they never earned. It matters most between co-founders. A frequent way for a young company to fall apart is one partner leaving after a few months while still owning half of what the other keeps building. Agreeing vesting early, while the shares are an abstract number rather than something worth fighting over, avoids that argument.
How to apply it
- Apply vesting to every founder's shares, not only to later hires. It treats everyone equally and singles nobody out.
- Start from the standard shape of four years with a one-year cliff, then adjust if there is a reason.
- Decide what happens on a sale of the company or an early exit in the same document, so nobody negotiates vesting terms mid-deal.
- Put it in writing and have it signed before the company has real value, such as an investor or paying customers.
- Take legal and tax advice on the paperwork, because the rules differ by country.
What it is
Vesting means shares are earned gradually. Someone granted 10,000 shares does not own them all on the first day. They become theirs bit by bit as time passes, provided the person stays. A common structure runs for four years with a one-year cliff: nothing vests during the first year, a quarter vests on the first anniversary, and the rest vests in equal monthly steps over the next three years.
Common mistakes
- Skipping vesting between friends. The conversation is easiest at the start and impossible after someone has left with half the company.
- Vesting only the later hires. If founders are exempt, the people who join afterwards will notice, and so will investors.
- Leaving out what happens on a sale. Without a clause on acceleration, founders and buyers negotiate it under pressure in the middle of a deal.
- Setting it up after the company has value. Moving shares into a schedule later can trigger tax and needs everyone's agreement.
- Treating the template as final. A standard four-year schedule is a starting point. Check it against the roles and how long each person is really committed.