Vesting Schedule in Startup Equity

Introduction to Vesting Schedules in Startup Equity

If you are joining a startup or starting one yourself, understanding the vesting schedule is key. It explains how your ownership in the company becomes yours over time. This protects both founders and investors by ensuring commitment.

In this article, you will learn what a vesting schedule is, why it matters, and how it works in startup equity. We will also explore common types and examples to help you grasp this important concept.

What Is a Vesting Schedule?

A vesting schedule is a timeline that shows when you earn full rights to your startup shares or options. Instead of getting all your equity immediately, it is earned gradually. This encourages you to stay with the company and contribute long-term.

For example, if you receive 10,000 shares with a four-year vesting schedule, you might earn 25% each year. After one year, you own 2,500 shares, after two years 5,000, and so on until fully vested.

Vesting schedules usually include a cliff period. This is a short initial time, often one year, before any shares vest. If you leave before the cliff, you get no shares. This protects the company from giving equity to people who leave early.

Why Are Vesting Schedules Important?

Vesting schedules protect startups and motivate team members. Here are the main reasons they matter:

• Retention: They encourage founders and employees to stay longer.
• Fairness: Equity is earned based on time and contribution.
• Investor Confidence: Investors trust startups with vesting because it reduces risk.
• Preventing Loss: If someone leaves early, unvested shares return to the company.

Without vesting, a co-founder or employee could leave immediately with a large ownership stake, which could harm the startup’s future.

Common Vesting Schedule Types

Startups use different vesting schedules depending on their needs. The most common types include:

• Standard Four-Year Vesting with One-Year Cliff: The most popular. 25% vests after one year, then monthly or quarterly vesting for the next three years.
• Monthly Vesting: Shares vest every month evenly over the total period, often used after the cliff.
• Accelerated Vesting: Vesting speeds up on certain events like acquisition or IPO.
• Milestone-Based Vesting: Vesting depends on achieving specific goals or performance targets.

For example, a startup founder might have a four-year vesting with a one-year cliff, while a consultant might have milestone-based vesting tied to project completion.

How Vesting Works in Practice

Let’s say you join a startup and get 8,000 shares with a four-year vesting schedule and a one-year cliff. Here’s how it works:

• During the first year, no shares vest. If you leave, you get nothing.
• After one year, 2,000 shares vest all at once (25%).
• After that, 1/48th of the shares vest each month (about 166 shares).
• If you leave after 18 months, you keep the shares vested so far (2,000 + 6 months × 166 = 2,996 shares).
• The remaining unvested shares return to the company.

This system rewards loyalty and contribution while protecting the startup’s equity pool.

Examples of Vesting in No-Code/Low-Code Startups

No-code and low-code startups often use vesting schedules to manage equity for founders and early employees. Here are some examples:

• Bubble: Early team members typically have four-year vesting with a one-year cliff to ensure long-term commitment.
• Glide: Uses milestone-based vesting for contractors who build specific app features.
• Make (formerly Integromat): Offers accelerated vesting upon acquisition to reward founders and key employees.
• Zapier: Implements monthly vesting for employees after the cliff to keep motivation steady.

These examples show how vesting adapts to different roles and company stages.

How to Negotiate Your Vesting Schedule

If you are offered equity, you can negotiate your vesting terms. Here are tips to consider:

• Understand the Cliff: Ask if there is a cliff and how long it lasts.
• Vesting Period: Four years is standard, but shorter or longer periods can be discussed.
• Acceleration: Negotiate accelerated vesting for events like acquisition or termination without cause.
• Milestones: Clarify if any vesting depends on performance goals.
• Consult a Lawyer: Equity agreements can be complex, so get professional advice.

Knowing your vesting schedule helps you make informed decisions about joining or staying with a startup.

Conclusion: Mastering Vesting Schedules for Startup Success

Understanding vesting schedules is essential if you want to protect your equity and your startup’s future. It ensures fairness and motivates everyone to contribute long-term.

Whether you are a founder, employee, or investor, knowing how vesting works helps you negotiate better deals and build stronger companies. Use this knowledge to secure your stake and grow with your startup.