Vesting is the process of earning equity over time — the standard mechanism that keeps founders and employees aligned with long-term company outcomes.

How it works

Typical startup vesting for employees:

• Four-year schedule with one-year cliff
• Nothing vests until month 12; at the cliff, 25% vests at once
• Monthly or quarterly vesting continues for the remaining three years

Founders often hold shares upfront but agree to reverse vesting — the company can repurchase unvested shares if they leave. Investors frequently require founder vesting refresh on major rounds.

Options vest under an equity incentive plan. Exercising vested options converts them to shares, sometimes triggering tax events. Acceleration clauses — single or double-trigger — can vest unvested equity on acquisition or termination without cause.

Example: 48,000 options, 4-year vest, 1-year cliff. At 18 months, 18,000 options are vested (25% at 12 months + 6 months of the remaining 75%).

Why it matters

• Founders: Understand what you lose if you exit early. Negotiate credit for time served in acqui-hires.
• Operators: Total comp includes vesting equity — compare grant size, strike price, and refresh policies across offers.

Common mistake

Assuming all grants vest the same way. Advisor grants, RSA vs ISO vs NSO, and country-specific tax rules change net outcomes dramatically.

Related ideas

See also equity incentive plan, cliff, acceleration, and leaver provisions.