Vesting clauses determine when founders and employees earn their equity. While primarily associated with employee stock options, vesting increasingly applies to founder shares, especially after institutional investment.
What It Means
Vesting is the process by which equity ownership is earned over time. A standard vesting schedule is 4 years with a 1-year cliff – no equity vests during the first year, then the remainder vests monthly or quarterly. Founder vesting is often required by investors to ensure continued commitment.
Key Terms
Cliff Period: The minimum time before any equity vests (typically 12 months). Acceleration: Single-trigger (vests on acquisition) or double-trigger (vests on acquisition AND termination). Reverse Vesting: Applied to founder shares already owned, creating a repurchase right for unvested portions.
Decision Framework
Founders should negotiate: double-trigger acceleration to protect against losing equity in acquisitions, reasonable cliff periods, and vesting credit for time already invested before the round.
Nirji Strategic Perspective
Nirji Ventures ensures founders negotiate vesting terms that reflect their contributions and protect their interests, particularly around acceleration triggers and good leaver definitions.
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Strategic Context & Related Resources
Navigating this landscape requires expert guidance. Nirji Ventures offers fundraising readiness and startup consulting to help founders and executives make informed decisions.
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