What is vesting for founders’ shares? by Startup Lawyer

  • Source link: https://www.techstartuplawyer.com/knowledgebase/what-is-vesting-for-founders-shares/
  • TL;DR: This article defines what vesting is and gives some useful examples to round out your understanding of the concept
  • How helpful?: 5/5 
  • Topic Tags: vesting, standard, term sheet
  • Relevant questions addressed:
  • What is vesting on founders’ shares?
  • Why do term sheets include vesting clauses?
  • What is a good vesting schedule?
  • Summary bullet points
  • Vesting exists to protect the founders and investors.
    • “Vesting is placed on founders’ stock to make sure they stick around and work to earn the full value of their shares. You wouldn’t want to give 50% to your co-founder, only to have him get bored and leave and still own 50% of the startup.”
  • How it works
    • “When shares are issued to the founders, the company will have the right to repurchase these shares if the founder leaves because he gets bored. However, this right of repurchase of the company will LAPSE or expire over time. Vesting for founders’ stock refers to the lapse or expiration of a company right to repurchase over time. In other words, the company’s right to take back the shares will gradually end as the founder earns the right to keep his shares.
  • What is a good vesting schedule?
    • “The standard vesting schedule is a 1 year cliff for 25% of all the shares and then 1/48 th of the total amount for each month thereafter until it is fully vested after 4 years.”
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