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.
Vesting is how a cap table stays aligned with who is actually building the company. Without it, a co-founder who quits in month six keeps a large stake forever — which punishes the founders who stay, complicates every future fundraise, and can make the company hard to invest in.
When investors impose or reset vesting at a priced round, founders who've already been working for a while commonly negotiate credit for time served — a portion of their shares treated as already vested, with the rest vesting over the remaining schedule. Ask for it rather than accepting a full clock reset.
Taxes matter here too. Founders who buy restricted stock at incorporation for a nominal price typically file a Section 83(b) election, which must be made within 30 days after the transfer. Without it, the founder can owe ordinary income tax on the shares' increased value as they vest.
Hypothetically, two co-founders each hold 4,000,000 shares vesting over 48 months with a 12-month cliff. At month 12, 1,000,000 shares vest for each; after that, about 83,333 vest per month. If one founder leaves at month 18, she keeps 1,500,000 vested shares and the company can repurchase the 2,500,000 unvested shares for reallocation. Leave at month 11, and she keeps none.
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.
What is single-trigger vs. double-trigger acceleration for founders?
Single-trigger acceleration vests unvested shares on one event, usually an acquisition. Double-trigger requires the acquisition plus the founder being terminated without cause or resigning for good reason within a set period. Double-trigger is far more common because acquirers want founders to stay through integration.
Can founders get credit for time worked before the financing?
Often yes. When vesting is imposed or reset at a priced round, founders commonly negotiate to have part of their shares treated as already vested for time served, with the rest vesting going forward.
Should founders file an 83(b) election?
Founders who buy restricted stock subject to vesting generally do, and the election must be filed within 30 days of the transfer — there's no extension. Talk to a tax advisor about your situation.
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