Analysis
The four-year vesting schedule with a one-year cliff is the least examined document in startup formation, and David Siegel of Grellas Shah LLP argues in Crunchbase News that it manufactures the exact dispute it was meant to prevent. A co-founder who leaves in year three walks away with a large vested block, contributes nothing further, and becomes a permanent line on the cap table that dilutes everyone who stays.
The number that should get a GP's attention is the tolerance band. Siegel writes that investor patience for equity held by departed founders has compressed from a range of 5% to 20% down to roughly 2.5%. That is not a style preference; it is a financing condition. A company carrying 15% to 20% of dead equity into a Series A is negotiating against a clock, and the usual resolutions -- an oversized option pool refresh, a repurchase at a negotiated price, a recapitalization -- all transfer value away from the founders who are still shipping.
Siegel's account of how these fights actually surface is the useful part: "We frequently see litigation that is nominally about intellectual property or confidentiality, but everyone knows the real goal is simply to get the equity back." Companies spend six figures on a lawsuit about a Slack export in order to negotiate a stock buyback. That cost is invisible in any benchmark dataset because it shows up as legal expense, not as a cap table event.
“Siegel writes that investor patience for equity held by departed founders has compressed from a range of 5% to 20% down to roughly 2.5%.”
His proposed fixes split into control and economics. On control: strip voting rights automatically on departure through proxy transfer and drag-along provisions, so a former founder cannot block a financing. On economics: move to five- or six-year schedules with back-weighted vesting, pre-agree a buyout methodology at formation, or convert departing holders into non-voting stock. None of it is exotic -- it is the same toolkit used in professional services partnerships for decades -- and all of it costs almost nothing to paper at incorporation.
The counterargument deserves airtime. The four-year standard exists because it is legible: every founder, employee and investor understands it, which lowers negotiating friction at exactly the moment a company can least afford friction. Back-weighted six-year schedules shift risk onto founders, who are already the least diversified holders in the structure, and a founder who reads a punitive vesting schedule in a term sheet may simply start a different company. The right answer is probably narrower than Siegel's -- fix the control provisions, which are free, and be far more cautious about extending the economic clock.
For anyone incorporating this quarter, the concrete move is to add a departure proxy and a pre-agreed repurchase formula to the founder stock agreements now, while everyone is friendly and nobody's equity is worth anything. That paperwork costs a few thousand dollars at formation and replaces a dispute that routinely costs several hundred thousand.
