Software Growth

Vesting

Vesting is how equity is earned over time. A common schedule is four years with a one-year cliff, so nothing vests until the first anniversary.

Vesting means you earn your equity gradually instead of owning all of it on day one. If you leave early, you keep only what has vested, and the rest returns to the company. It protects a company from a co-founder or early hire who leaves after a month holding a large stake.

The standard schedule

Carta describes the most common time-based schedule in tech as monthly vesting over four years with a one-year cliff. The cliff is the initial period during which nothing vests. On the first anniversary, the first 25 percent vests at once. After that, shares vest monthly.

Example: a hire gets options on 48,000 shares. At month 12, 12,000 vest (25 percent). From months 13 to 48, 1,000 vest per month (36 months x 1,000 = 36,000). Total: 48,000. If they leave at month 8, they keep none; at month 30, they keep 12,000 + 18,000 = 30,000. With options, keeping them means keeping the right to buy those shares, usually within a limited window after leaving (90 days has been the common default).

Founder vesting

Founders often vest their own shares too, sometimes with credit for time already worked. Investors commonly ask for it in the term sheet, and it is wise for a founding team to agree it on their own, since it prevents disputes if one founder leaves. Without it, a departed co-founder can keep a large stake in a company they no longer work on.

Acceleration

Acceleration speeds up vesting on a triggering event, most often an acquisition. Carta separates two types:

  • Single trigger: unvested equity vests when the acquisition closes.
  • Double trigger: vesting accelerates only if there is an acquisition and the person is then terminated without cause.

Double trigger is more common because buyers want key people to stay after the deal. If you plan to sell, check what your grants say, since it shapes what a buyer will offer in an exit.

  • Options need an exercise price set by a 409A valuation.
  • Vesting terms belong on the cap table and are checked during due diligence.
  • Tax treatment of options and restricted stock varies by country. In the US, an 83(b) election must be filed within 30 days of receiving the shares, with no extensions. It applies to restricted stock and early-exercised options, not to ordinary unexercised options, so ask a tax professional.

This is general information, not legal or tax advice.

Sources

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