Founder vesting is the schedule that turns promised founder equity into earned ownership as founders stay and work at the company.

How it works

Most venture-backed companies apply vesting to founder shares even though founders started the business. A common pattern is four-year vesting with a one-year cliff: nothing vests until twelve months, then roughly one-quarter vests, then the rest monthly or quarterly. Until shares vest, the company usually holds a repurchase right at nominal cost if the founder leaves. After vesting completes, those shares are fully owned subject to other agreements. Vesting can restart or accelerate in specific scenarios—acquisition, termination without cause, or negotiated good-leaver treatment.

Why it matters

• Founders: Understand what you keep if you leave in year two versus year four. Ask about acceleration on a sale and whether unvested shares are subject to repurchase at par value.
• Investors: Vesting aligns incentives and prevents a departed founder from blocking decisions or holding a disproportionate stake. Standard vesting is a baseline diligence item, not a punishment.

Common mistake

Assuming founders are automatically fully vested because they incorporated the company. Many investors require reverse vesting on existing founder shares at the first priced round—treating prior ownership as subject to the same schedule going forward.

Related ideas

Cliff periods, good leaver / bad leaver provisions, stock option pools, and acceleration on change of control.