Earned ownership through continued company involvement
Founder vesting subjects founder shares to a schedule so that ownership is earned progressively rather than granted in full immediately. If a founder leaves before their shares are fully vested, the company or remaining founders typically have the right to buy back the unvested portion at nominal value, regardless of how the original equity split was agreed.
This mirrors employee stock option vesting but applies to shares the founder already legally owns, which is why it is usually implemented through a reverse vesting mechanism: the founder holds all their shares from day one, but the company holds a repurchase right over the unvested portion.
Default time based earning periods for founders
| Milestone | Vested percentage |
|---|---|
| Before 12 months (cliff) | 0% |
| At 12 months | 25% |
| Months 13 to 48 | Remaining 75% vests monthly, roughly 2.08% per month |
| At 48 months | 100% |
A cliff means no shares vest until the founder has been involved for a minimum period, usually 1 year. This protects the company from a founder who leaves after a few months while still walking away with a meaningful stake, the same logic behind vesting rules for employees.
Vesting start date adjustments for prior service
If founders have already been working on the company for a year before setting up formal vesting, they can negotiate to start their vesting clock retroactively, effectively giving credit for time served. Investors will scrutinize this during due diligence and generally accept reasonable credit if it is well documented.
Backdating vesting start dates without proper board and shareholder approval can create legal and tax complications. Any credit for past work should be formally documented.
Questions on why investors require vesting
- Why do investors insist on founder vesting?
- It aligns founder incentives with the company's long-term success and protects the cap table if a founder leaves early, which is one of the most common risks in early-stage startups.
- Does vesting apply to solo founders too?
- Yes. Investors often require vesting even for a solo founder, since the company still needs continuity if that founder departs.
- What happens to unvested founder shares after departure?
- They are usually repurchased by the company at nominal value and returned to the option pool or held as treasury shares for future grants.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.