Control & governance
Founder vesting
Also called Reverse vesting, Founder restricted stock
An arrangement under which founders earn their own shares over time — typically four years with a one-year cliff — so that a founder who leaves early forfeits the unearned portion.
In plain English
Founder vesting sounds strange until you consider the alternative. Two people incorporate a company and split the shares equally. One leaves after five months. Without vesting, that person owns half the company forever, contributes nothing further, and sits on the cap table through every subsequent round — a dead weight that makes the company harder to fund and demoralising to work in.
The standard schedule is four years with a one-year cliff. Nothing vests in the first twelve months; at the anniversary, a quarter vests at once; the remainder vests monthly or quarterly thereafter. Founders who have already been building for a year commonly get credit for that time.
Mechanically, the founder usually holds the shares from the outset subject to a company right to repurchase the unvested portion at nominal cost — hence "reverse vesting". This matters for tax: in the United States it is what makes the 83(b) election both possible and urgent.
Two acceleration provisions modify the picture. Single-trigger acceleration vests shares on a change of control. Double-trigger vests them if there is a change of control and the founder is terminated. Double-trigger is standard and sensible; single-trigger makes a company harder to sell, because acquirers are buying the team.
What it means for your cheque
Check that founder vesting exists before you invest. Its absence is one of the few genuine red flags that can be fixed cheaply at seed and becomes nearly impossible to fix later — asking a founder to put existing shares back on the table at Series A is a conversation that damages relationships.
The specific thing to look for is a co-founder who has already left. If someone departed holding a large fully vested block, the damage is done and it will be a drag on every future round. It is a question worth asking in the first meeting, because founders rarely volunteer it.
Do the arithmetic
The co-founder who leaves at month five
Two founders, 50% each. One leaves after five months. The effect of vesting, or its absence, on everyone who comes later.
| No vesting — departing founder keeps | 50% of the company, permanently |
|---|---|
| No vesting — remaining founder holds | 50%, diluting to about 30% after seed |
| No vesting — effect on fundraising | severe; many investors will not proceed at all |
| Four-year vesting with a one-year cliff — departing founder keeps | nothing, having left before the cliff |
| Vesting — shares returned to the company | 50%, available for the team and future hires |
| Vesting — remaining founder's position | intact, with equity to attract a replacement |
The same event, five months in, either kills the company's ability to raise or is a manageable setback. One clause, agreed at incorporation, decides which.
At the table
What to negotiate
- Confirm all founders are on a vesting schedule, and that it is documented rather than intended.
- Four years with a one-year cliff is the standard. Credit for time already served is normal and fair.
- Check for single-trigger acceleration and push for double-trigger — acquirers want the team to stay.
- Ask what happens on termination for cause versus a voluntary departure; the treatments should differ.
- For US companies, check that founders filed their 83(b) elections within 30 days. This is a common and expensive omission.
Around the world
How this differs by market
Restricted stock with reverse vesting and an 83(b) election is the standard structure, and the 30-day filing deadline is strict with no extensions.
EUUK companies typically use good leaver and bad leaver provisions in the articles rather than US-style vesting, achieving a similar result by a different mechanism.
APACSingapore follows US practice closely. Elsewhere the mechanics vary, and enforceability of forfeiture provisions differs by jurisdiction.
Founder vesting: common questions
Why would founders agree to vest shares they already own?
What is the difference between single-trigger and double-trigger acceleration?
Can vesting be added after incorporation?
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