Founder vesting is the mechanism by which founders earn their equity over time, rather than owning all of it the moment the company starts.
Why does this matter?
Imagine three founders each take 33% of the company on day one, with no vesting. One of them leaves after two months. They walk away with a third of the company forever, having contributed almost nothing. The two remaining founders now build the entire company while a third of its value sits with someone who is gone.
Vesting prevents exactly this. With a standard four-year vesting schedule, a founder who leaves after two months has earned almost none of their equity. The unearned portion returns to the company, available for the people actually building it.
How a vesting schedule works
A typical founder vesting schedule has three parameters: a total duration (commonly four years), a cliff (commonly one year), and a vesting frequency (commonly monthly after the cliff).
- Duration: the full period over which equity is earned, usually four years.
- Cliff: an initial period — usually one year — during which no equity vests at all. Leave before the cliff and you earn nothing.
- Frequency: after the cliff, equity vests in increments, usually monthly.
So a founder with 40% equity on a four-year monthly schedule with a one-year cliff earns nothing for the first year, then 10% of the company at the one-year mark, then roughly 0.83% more each month until they are fully vested at year four.
Vesting is not a sign of mistrust between founders. It is what makes the equity split survive the moment a founder leaves.
Vesting before incorporation
Many founders think vesting only applies after incorporation, when shares are formally issued. But the intention to vest can — and should — be agreed before incorporation, in the founder agreement. This way the terms are settled while the relationship is healthy, not negotiated under pressure later.