What is founder reverse vesting?
Founder reverse vesting is the mechanism by which a VC requires founders to “re-earn” their pre-existing equity stake over time, typically 4 years with a 1-year cliff. Unlike forward vesting (where new shares are earned), reverse vesting takes founders’ already-issued shares and makes them subject to repurchase by the company if the founder departs early.
How it works mechanically
At the Series A closing, the founder signs a “repurchase right” agreement: if the founder leaves within the first year, the company can buy back 100% of their shares at original issuance price (often near zero). After year 1, the cliff “drops” and 25% of shares are vested; remaining 75% vest monthly over years 2-4. At year 4, the founder is fully vested and the repurchase right disappears.
Why VCs require it
Reverse vesting protects against the “founder walks away with all the equity” scenario after a single round of funding. Without it, a founder receiving USD 5M for 25% of company could potentially leave and retain 75% of the equity. Reverse vesting creates economic incentive to stay for the full 4-year period during which the company is building.
Acceleration triggers
Founders should negotiate acceleration on (1) change of control: single trigger: 50-100% acceleration on acquisition; double trigger: acceleration on acquisition + involuntary termination within 12 months. (2) Termination without cause: typically 6-12 months acceleration if VC-led termination not for “cause.” Both terms are heavily negotiated.
Tax treatment: 83(b) election
In US-flipped structures, founders should file an 83(b) election within 30 days of reverse vesting agreement: locking tax liability at zero (since the repurchase price equals fair value) rather than incurring ordinary income as shares vest. Missing the 83(b) window can create massive tax exposure as company value grows.
Related: Founder Vesting Cliff, Anti-Dilution, Liquidation Waterfall, Full Ratchet.
Why investors require founders to re-vest
It can feel counterintuitive that founders, who built the company, are asked to “earn” shares they already own, but reverse vesting is one of the most important alignment tools in venture deals. The company gains the right to repurchase a departing founder’s unvested shares (usually at cost), typically over a four-year schedule with a one-year cliff. The purpose is to protect the cap table and the remaining team: a co-founder who leaves after six months should not walk away with a large, permanent equity stake while others carry the company for years. The negotiation centres on the schedule, any vesting credit for time already served, acceleration on a sale, and the good leaver / bad leaver distinction, which determines whether a departing founder keeps vested shares or forfeits more when they leave under adverse circumstances.
When the investor requirement arises
Almost every institutional VC (seed stage and later) requires reverse vesting. The standard term sheet clause reads: “Founder shares will be subject to a 4-year vesting schedule with 1-year cliff, with credit given for time served.” Credit for time served means that the time since the founder established the company counts towards the schedule: if the company was founded 18 months earlier, the reverse vesting schedule starts at month 18, so the founder waits 2.5 more years.
Implementation under Turkish law
Reverse vesting is not a distinct concept under the Turkish Commercial Code. In practice it is built through a combination of a shareholders’ agreement (SHA) and a call option, with the SHA setting out good leaver and bad leaver definitions and the repurchase rights:
- Bad leaver (resignation, or where grounds for termination for just cause exist): unvested shares are repurchased at nominal value.
- Good leaver (health, death, departure by mutual agreement): a formula between fair market value and nominal value applies to unvested shares.
In practice, the main point of negotiation is the scope of the good leaver definition. A standard investor-side demand is that resignation never counts as a good leaver event.