Founder Vesting
A vesting schedule applied to founders' own shares, protecting the company and remaining co-founders if one leaves early.
Founder vesting subjects founders' equity to the same earn-over-time structure typically used for employees — commonly four years with a one-year cliff — rather than granting full ownership immediately at incorporation. It protects the company and remaining co-founders from a scenario where one founder leaves shortly after starting but keeps a full, disproportionate ownership stake.
Investors virtually always require founder vesting be in place (or reset with reasonable credit for time already served) before closing a priced round, treating its absence as a serious governance and alignment red flag. Founders sometimes negotiate partial credit for time already worked pre-financing, so the vesting clock doesn't fully restart from zero at the investment date.
Set up founder vesting at incorporation, with co-founders agreeing on the terms directly with each other before any outside investor is involved — it's a far healthier conversation to have proactively among founders than to have it forced by an investor's term sheet later.
Do investors require founder vesting even if it wasn't set up at incorporation?
Almost always yes — if founders didn't put vesting in place at incorporation, investors in a priced round will typically require it be established (sometimes with credit for time already worked) as a closing condition.
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