What vesting is and why it matters
Founder vesting is the mechanism by which founders earn their equity over time, contingent on continued involvement in the company. Without vesting, a co-founder who leaves after six months retains their full equity stake — leaving the remaining team doing all the work while a departed founder holds a large ownership position that makes the cap table unattractive to investors and future hires.
Institutional investors require founder vesting as a standard condition of investment. If you are approaching a Series A without a vesting schedule in place, expect it to be imposed as a closing condition — often on terms less favourable than you would have negotiated upfront.
The standard structure
The market standard for founder vesting is a 4-year vesting schedule with a 1-year cliff. This means: no equity vests in the first 12 months (the cliff); at the 12-month mark, 25% of equity vests at once; after the cliff, the remaining 75% vests monthly (approximately 2.08% per month) over the following 36 months.
Example: a founder holds 1,000,000 shares with standard vesting. If they leave at month 8, they receive 0 shares. If they leave at month 13, they receive 250,000 shares (the cliff). If they leave at month 24, they receive approximately 500,000 shares.
Reverse vesting vs forward vesting
In jurisdictions where founders receive shares at incorporation and then become subject to a company buyback right, this is called reverse vesting: shares are issued upfront, but the company retains the right to repurchase unvested shares (typically at par value or cost) if the founder leaves. This is common in Delaware structures.
In some jurisdictions, shares are simply issued over time as vesting milestones are reached (forward vesting). The economic outcome is similar; the mechanics and tax treatment differ by jurisdiction.
Acceleration provisions
Vesting agreements typically include acceleration clauses that allow unvested shares to vest early in certain circumstances:
Single trigger acceleration: all or some unvested shares vest upon a change of control (acquisition). Favours founders but may reduce company sale price, as acquirers prefer key founders to remain incentivised post-acquisition.
Double trigger acceleration: full vesting requires two events — a change of control AND termination of the founder without cause (or resignation for good reason) within a defined period after the acquisition. This is the market standard and more acceptable to investors and acquirers.
What to negotiate in a term sheet
When an investor proposes vesting terms in a term sheet, the key points to negotiate are: credit for time already worked (if the company is 18 months old, a founder might reasonably request that 18 months of vesting be treated as already earned); the definition of termination events that trigger acceleration; and the exact repurchase price for unvested shares.
A founder who has been building a company for two years before raising institutional capital should not be treated as if they started yesterday. Most reasonable investors will agree to partial credit for prior contribution.