What is founder vesting?
Founder vesting is the standard practice in venture-backed startups whereby founder equity is subject to a vesting schedule — meaning founders technically own shares but the company retains a right to repurchase unvested shares at nominal value if a founder departs. Vesting protects co-founders and investors against scenarios where a founder leaves early but retains full equity. The default market structure is 4-year vesting with a 1-year cliff: nothing vests in year 1, then 25% vests at the 1-year mark (cliff), with the remaining 75% vesting monthly over 36 months.
Cliff mechanics
- 1-year cliff: if founder leaves before 12 months, 0% vested — protects against founder departure during product-market fit exploration.
- Post-cliff: 25% (12 months) vests immediately at cliff; monthly vesting resumes thereafter.
- Reverse vesting for founders: founder receives all shares at incorporation but signs Restricted Stock Purchase Agreement (RSPA) granting company repurchase rights on unvested portion.
- 83(b) election: US-incorporated founders should file within 30 days to elect immediate tax recognition at low value rather than as shares vest at higher valuations.
Acceleration interactions
- Pre-VC funding: founder vesting often re-set or extended at Series A (e.g., add 1-2 years for founders already vested at funding).
- Single vs. double trigger: double-trigger is market for founder shares (CoC + termination).
- Founder-founder protection: co-founder leaving early triggers vesting consequences that benefit remaining founders and investors via unvested share return to pool.
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