How Vesting Schedules Work—and What They Mean for Founders

Greg Miaskiewiczby Greg Miaskiewicz • 6 min readpublished January 27, 2021Capbase blog

What is vesting?

While the idea of instantaneous value may be exciting to founders (including yourself), if you have more than one employee, you will still want to have a vesting schedule firmly in place at the time you incorporate your company.

You may have heard that not having a schedule may give you additional “leverage” over your investors, but this almost never the case—the lack of a schedule is apt to drive away legitimate concerns, who will reasonably expect it to be in place.

Vesting, as a concept, essentially exists to ensure that essential employees, like founders, stay with a company through the initial lean years and for long enough to make the product a success. Most startups give employees, including founders, some form of equity compensation in the company’s equity.


Trying to get a handle on your startup’s equity?

Capbase makes it simple. Set up your stock plan, allocate equity, purchase founder shares, and set vesting schedules. It’s everything you need to build an investable company now.

The Vesting Period

If you’re already familiar with the concept of vesting, feel free to skip ahead. An employee or founder’s stock options, equity grants, or other limited benefits are said to vest when they receive the non-forfeitable right to exercise those options. In almost all cases, this is governed by a pre-set vesting schedule, which determines at what time employees will be able to exercise their options and in what percentage.

A four-year vesting schedule is the norm for most stock options. In a typical 4 year schedule, the default assumption in Capbase, 25 percent of options will vest after one year has passed since they joined the company—the so-called vesting cliff.

After the one year cliff, the remainder of stock options may vest at any predetermined rate, but at the mass of companies, they vest monthly for employees and quarterly for other personnel, like advisors.

Under this schedule, the holder has gained access to the full portion of promised stock (or vested equity) after four years—or the vesting period. They are then said to be fully vested. Before this time, you are liable to lose the un-vested portion of your stocks or options if you are terminated or leave the company.

Especially for founders, who have a special relationship with the company and have likely already devoted months—if not years—to the product, it helps to keep the option open to backdate their vesting schedule, adjusting it to begin at an earlier date to reflect the work they have already invested.

Co-founder equity is rarely the same. While the idea is romantic, it rarely happens that two (or more) founders of a startup bring equal portions of labor, intellectual property or material investment to the corporation. Each founder will bring something different to the company and likely has a different expectation of their time investment, and as such, the equity they receive will rarely be equal.

At the same time, most companies are served by splitting equity between founders in a balanced or equitable way, as in a 40/45 split rather than a heavily weighted 90/10 split. These issues are covered in expanded depth in the article How to Split Equity Among Co-Founders.

Vesting schedules are likely to be the same. Despite differences in equity, in most cases, companies will find it advantageous to maintain the same vesting schedule for all founders. This not only eliminates the appearance of inequality but may quell individual re-negotiations of terms by co-founders in the future.

Buying Your Founders’ Shares

In nearly all cases, the newly authorized founders shares are bought by founders at their par value at the time of incorporation. Founders may choose to purchase their shares outright or in some cases trade a portion of their technological IP for some of the final value.

The valuation of this IP is called consideration. We provide pre-filled forms for consideration handovers in Capbase. The importance of this particular process will be addressed in a future article

Once you, or an employee have purchased or been given a stock grant, you will more than likely want to make a section 83 b election, which will allow you to obtain special tax treatment related to your stock option grant price. The buying process itself is a slightly more complicated affair, which is why we’ve automated and provided a sample timeline for it in Capbase.

Employee Equity CompensationFounder EquityStartup Equity
Greg Miaskiewicz

Security expert, product designer & serial entrepreneur. Sold previous startup to Integral Ad Science in 2016, where he led a fraud R&D team leading up to a $850M+ purchase by Vista in 2018.


Vesting Schedules: Best Practices for Startup Founders

Vesting schedules play an important part in keeping a startup together. They’re a designed as a motivator not only for employees, but also for founders. If you have them, it sends a signal to investors, that you’re in it for the long haul.

Greg Miaskiewiczby Greg Miaskiewicz • 7 min read

The Ultimate Guide to Cap Tables for Startup Founders

Most founders have little clue about how cap tables work when they start their first startup. Keeping accurate records of your cap table is essential for startup founders if they plan on raising capital from VCs or selling the company.

Greg Miaskiewiczby Greg Miaskiewicz • 8 min read

What is a 409A Valuation? Startup Stock Valuation Explained

409A valuations are independent appraisals of a startup's common stock. Startups should use an independent, outside valuation firm to get a 409A valuation before offering stock options to employees to avoid fines and legal issues with the IRS.

Greg Miaskiewiczby Greg Miaskiewicz • 9 min read
DISCLOSURE: This article is intended for informational purposes only. It is not intended as nor should be taken as legal advice. If you need legal advice, you should consult an attorney in your geographic area. Capbase's Terms of Service apply to this and all articles posted on this website.