Vesting
VES-ting
The process by which an employee earns their equity over time, typically over four years with a one-year cliff.
Vesting is the schedule that determines when your equity becomes truly yours. The standard schedule is 4-year vesting with a 1-year cliff. This means you earn your equity gradually over 4 years, but you get nothing if you leave before the 1-year mark.
After the cliff, vesting typically happens monthly. If you have 10,000 shares on a 4-year schedule, you vest 2,500 at the 1-year cliff, then roughly 208 shares per month for the remaining 36 months.
Vesting protects the company and other shareholders. Without vesting, a cofounder could leave after three months and keep 50% of the company. With vesting, leaving early means forfeiting unvested shares. This aligns incentives: you earn your ownership by contributing to the company over time. Vesting applies to both stock options and RSUs.
Examples
An employee hits their one-year cliff.
They were granted 10,000 options on a 4-year vest. At the 1-year cliff, 2,500 options vest. They can now exercise those 2,500 shares. Each subsequent month, 208 more options vest.
A cofounder leaves before the cliff.
The cofounder received 5M shares subject to 4-year vesting. They leave after 8 months. Because they have not reached the 1-year cliff, they forfeit all 5M shares. The shares return to the company for reallocation.
An employee negotiates accelerated vesting.
A VP-level hire negotiates single-trigger acceleration: if the company is acquired, 50% of their unvested shares vest immediately. This protects them from being fired post-acquisition before their shares fully vest.
Frequently asked questions
What happens to unvested shares when you leave?
Unvested shares are forfeited and return to the company's option pool. For stock options, you typically have 90 days to exercise vested options after leaving. Some companies offer extended exercise windows of 5-10 years.
Can vesting terms be negotiated?
Yes, especially for senior hires. Common negotiations include shorter vesting periods (3 years instead of 4), no cliff (for experienced hires), and acceleration provisions (vesting accelerates on acquisition or termination).
Related terms
The right to purchase company shares at a fixed price (the strike price), typically granted to employees as part of compensation.
Ownership in a company represented by shares of stock, which entitle the holder to a proportional share of the company's value.
The minimum period an employee must work before any equity vests, typically one year in startup vesting schedules.
A company's promise to give an employee shares of stock after vesting conditions are met, with no purchase required.
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