Founder Vesting

Founder vesting is the schedule on which a startup's founders earn their own founder common stock over time. Unvested shares can be repurchased by the company if a founder leaves before the schedule is complete. The startup standard is four years with a one-year cliff, often re-set or modified at the first priced round at the new investor's request.

In practice, founders are issued their stock as restricted stock at or near incorporation and the company holds a repurchase right over the unvested portion. If a founder departs before the cliff, the company can buy back the full grant at the original purchase price (often near zero). After the cliff, the company can repurchase only the unvested remainder. At the first priced round, investors almost always require founders to re-vest some or all of their shares over a new four-year schedule, usually with credit for time already served. Acceleration is the other lever worth knowing. "Single trigger" acceleration vests a portion of the stock automatically on a change of control. "Double trigger" requires both a change of control and an involuntary termination, and is the more common compromise in venture deals. The 83(b) election deadline is the founder-side detail that ruins lives: it must be filed with the IRS within 30 days of the restricted stock grant, and missing it creates a tax bill that grows with the company's valuation every year stock vests.

What founders get wrong: Missing the 83(b) election deadline. There is no grace period. Miss the 30-day filing window and you owe income tax on the value of stock as it vests, at increasing prices, instead of paying tax on the near-zero value at grant.

Related: Vesting · Vesting Cliff · Founders Agreement · Co-founder

FAQ

What is the standard founder vesting schedule?
Four years with a one-year cliff, the same structure used for employee options. Investors at the first priced round typically require founders to re-vest, usually with credit for time already served at the company.

Why do investors require founders to vest their own stock?
To protect the cap table from a founder leaving early with fully vested equity. A departed founder holding a large unrestricted block is a liability investors will not accept at a priced round.

What is acceleration on change of control?
A provision that vests some or all unvested stock at a sale. Single trigger vests on the sale alone; double trigger requires both the sale and an involuntary termination, and is the more common venture standard.