What Founders Get Wrong About Their Own Vesting

Founder vesting means founders earn their shares over time rather than owning them outright from day one. Founders often experience the proposal as an insult — the company is theirs, and now someone wants it back.

The reframing that helps: vesting is not protection against you. It is protection against your co-founder leaving in month seven with a quarter of the company.

The standard shape

The convention is four-year vesting with a one-year cliff. Nothing vests until the first anniversary; at that point a year's worth vests at once, and the rest accrues monthly.

The cliff exists to handle the case that actually happens most often, which is a co-founder relationship failing early. Without it, someone who leaves after two months keeps a slice of the company permanently.

Acceleration

Two provisions govern what happens on a sale. Single-trigger acceleration vests shares on the acquisition itself. Double-trigger vests them if the company is acquired and the founder is terminated afterwards.

Acquirers generally dislike single-trigger, because they are buying a team and it lets that team leave fully vested. Double-trigger is the common negotiated position and is far easier to defend.

Credit for time already served

Founders who have been building for a year before raising can and should negotiate vesting credit for that period, so the clock reflects work already done. Investors routinely accept this. Founders routinely fail to ask.

The election with a deadline

Where founders receive restricted stock subject to vesting, there is a tax election that must be filed with the Internal Revenue Service within a strict window after the shares are issued — measured in days, and not extendable.

Missing it can produce tax bills in later years on value that has not been realized in cash. It is a short form and an unforgiving deadline, and it is the item most worth putting in front of an accountant at incorporation rather than at the next round.