Legal & Equity
Vesting
Also Known As
Equity VestingStock VestingVesting Schedule
Vesting is the process by which equity ownership is earned over time, protecting companies from early departures and ensuring that founders and employees remain committed to long-term success.
What is Vesting?
Vesting ensures that equity is earned, not just given. Instead of receiving all shares upfront, recipients earn them gradually over time. If someone leaves early, they forfeit unvested shares.
Standard Vesting Terms
4-Year Vesting with 1-Year Cliff:
- Total vesting period: 4 years
- Cliff: No shares vest until 1 year
- After cliff: 25% vests immediately
- Monthly vesting: Remaining 75% over 36 months
Vesting Example
| Timeline | Vested | Unvested |
|---|---|---|
| Day 1 | 0% | 100% |
| Month 11 | 0% | 100% |
| Month 12 (cliff) | 25% | 75% |
| Month 24 | 50% | 50% |
| Month 48 | 100% | 0% |
Why Vesting Matters
- Retention: Incentivizes staying
- Protection: Against early departures
- Fairness: Rewards contribution over time
- Investor Requirement: VCs require it
Vesting in Studios
Studio founders may have:
- Accelerated vesting upon spin-out
- Modified schedules based on studio tenure
- Double-trigger acceleration on acquisition
Example Usage
“The founder's 40% equity stake vested over four years with a one-year cliff.”