Vesting Schedule
A timeline over which equity is earned, typically 4 years with a 1-year cliff.
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Definition
A vesting schedule determines how equity is earned over time. The standard structure is 4 years total with a 1-year cliff: no equity vests during the first year, then 25% vests at the 1-year mark, and the remaining 75% vests monthly or quarterly over the next 3 years.
Vesting protects companies from giving equity to people who leave early. Without vesting, a co-founder who leaves after 3 months could walk away with 50% of the company. The cliff ensures a minimum commitment period before any equity is earned.
Founder vesting is equally important. Investors typically require founder vesting to ensure founders stay committed. Some founders negotiate for accelerated vesting on change of control (M&A) to protect their equity in acquisition scenarios.
Why It Matters for Founders
Vesting schedules align long-term incentives and protect all parties. For founders, they ensure co-founders earn their equity through continued contribution. For employees, vesting provides a structured path to significant equity ownership. For investors, vesting reduces the risk of key people departing with unearned equity.
Understanding vesting is critical when evaluating job offers at startups. 10,000 options with a 4-year vest means you earn approximately 2,500 per year. Factor this into your total compensation analysis alongside salary, benefits, and the company's potential.
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Formula
Standard: 4-year vesting with 1-year cliff, then monthly or quarterly vestingReal-World Example
An employee is granted 10,000 shares with 4-year vesting and 1-year cliff. After 12 months, they vest 2,500 shares (25%). Then 208.3 shares vest each month for the remaining 36 months.
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Frequently Asked Questions
What is a vesting schedule?+
What is a cliff?+
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What happens to unvested shares if I leave?+
What is accelerated vesting?+
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