Vesting is the mechanism that ensures equity is earned over time rather than granted outright. It aligns the incentives of founders, employees, and investors by requiring continued contribution to the company before equity fully belongs to the individual.
Standard vesting schedule
The near-universal standard in venture-backed startups is 4-year vesting with a 1-year cliff:
- 1-year cliff: no equity vests until the first anniversary. If the person leaves before 12 months, they receive nothing.
- Monthly vesting after cliff: after month 12, equity vests in equal monthly increments (1/48th per month)
- Full vesting at 4 years: after 48 months, 100% of the granted equity has vested
For example, an employee granted 48,000 options on a 4-year schedule with a 1-year cliff:
- Month 0–11: 0 options vested
- Month 12: 12,000 options vest (the cliff — 25% of total)
- Month 13–48: 1,000 options vest per month
- Month 48: all 48,000 options fully vested
Founder vesting
Investors almost always require founders to vest their shares, even if the founders received those shares at incorporation. This protects the company (and the investment) if a co-founder departs early:
- Typical founder vesting: 4 years with a 1-year cliff, sometimes with acceleration provisions
- Credit for time served: founders who have been working for 12+ months before raising may negotiate to start vesting with retroactive credit
- Single-trigger acceleration: all shares vest immediately upon acquisition — less common and investor-unfriendly
- Double-trigger acceleration: shares vest upon acquisition *and* termination of the founder — the market standard in 2026
Key vesting concepts
- Exercise price (strike price): the price at which an option holder can purchase shares, set by the latest 409A valuation
- Exercise window: how long after leaving a company an employee has to exercise vested options — traditionally 90 days, though many startups now offer extended exercise windows of 5–10 years
- Early exercise: some companies allow employees to exercise options before they vest, enabling the employee to file an 83(b) election and start the capital gains clock
Why vesting matters for fundraising
Unvested founder equity is a red flag for investors. If a co-founder can walk away with 50% of the company after 6 months, the remaining team bears enormous risk. Proper vesting protects against this scenario and signals maturity to investors.