What is a Vesting Schedule?

One of the most common misconceptions new founders have is that they own their entire company the day they incorporate. You might sign a document that says you have five million shares, but in a properly structured startup, you do not actually own those shares yet. You have to earn them.

This mechanism is called a Vesting Schedule. It is a timeline for when employees or founders earn the rights to their stock options or shares. It is essentially a retention tool that ensures everyone stays committed to the long term vision of the project.

If you hand out equity without a vesting schedule, you risk carrying “dead equity” on your cap table. This happens when someone owns a large piece of the company but is no longer contributing to its growth.

The industry standard for vesting is four years with a one year cliff. This is the default setting for Silicon Valley startups and most venture backed companies.

Here is how the math works in this scenario. You are granted equity, but you start with zero vested shares. The clock starts ticking on your first day of work. For the first twelve months, nothing happens. You accrue value, but you cannot claim it yet.

At the one year mark, you hit the “cliff.” Instantly, 25 percent of your total shares vest. You now own them. After that cliff, the remaining shares usually vest monthly over the next three years (1/48th of the total grant per month).

It feels counterintuitive to tell a founder they have to earn their own company. However, vesting is primarily there to protect founders from each other.

Imagine you start a company with a co-founder. You split the equity 50/50. Three months in, your co-founder decides the startup life is too hard and quits to take a corporate job. Without vesting, they walk away with 50 percent of your company forever. You are left doing all the work with only half the upside.

With a vesting schedule, that co-founder would leave with nothing because they did not reach the one year cliff. The unvested shares return to the company pool. This ensures that the equity belongs to the people actually building the business.

Vesting schedules often include clauses about what happens if the company is sold before the four years are up. This is called acceleration.

• Single Trigger: Your unvested shares vest immediately upon the sale of the company.
• Double Trigger: Your shares vest only if the company is sold AND you are fired by the new owners.

Double trigger acceleration is more common because it protects the buyer. They want to ensure key employees stay on board during the transition.

Implementing vesting requires uncomfortable conversations. It forces you to acknowledge that relationships might fail or that employees might leave.

However, it is a necessary structural component of a scalable business. Investors will rarely put money into a company where the founders do not have vesting. They want to know that the team is legally incentivized to stick around and finish what they started.