Glossary - Vesting
Vesting is the process by which an individual earns certain rights or assets over a set period of time. In the context of employment and corporate shareholding, vesting typically refers to the schedule or period over which employees or founders earn their stock or options. The purpose of vesting is to incentivize the individual to remain with the company and contribute to its growth over time.
Also known as
- Earning Rights
- Vesting Schedule
Use cases examples
- Employee Stock Option Agreement: Under this agreement, 25% of the stock options granted will vest at the end of the first year, with the remainder vesting monthly over the next three years.
- Founders' Shareholder Agreement: Co-founders' shares are subject to a four-year vesting period with a one-year cliff. This means that if a founder leaves before the first year, they forfeit all their unvested shares.
Considerations for investors
- Investors should ensure that the vesting schedule aligns with their expectations for company growth and founder commitment.
- Consideration of acceleration clauses in case of certain triggering events like a sale or merger of the company can protect investors' interests.
Considerations for founders
- Understanding the vesting schedule is crucial for founders, as it impacts their stake and control over the company.
- Negotiating a favorable vesting schedule with investors can be key to maintaining influence and ensuring commitment among the founding team.
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