Founder Vesting Schedule: 4 Years, 1-Year Cliff Explained

What is a vesting schedule?

A vesting schedule sets when a founder or employee earns their equity. For founders, the common setup is four years with a one-year cliff: nothing vests in the first 12 months, 25% vests at the one-year mark, and the rest vests monthly at 1/48 of the total until the end of year four.

Y Combinator's Michael Seibel describes this as the typical Silicon Valley setup, "four years of vesting with a one year 'cliff'", and is blunt about what it means: "while you might own 50% of the company on paper, if you leave or get fired within a year you walk away with nothing." The purpose, he writes, is that "if there is a problem you can fix it without harm in year one."

How cliff vesting works, month by month

Here is the standard schedule applied to a hypothetical founder holding 1,000,000 shares. After the cliff, about 20,833 shares vest each month (1/48 of the total).

The cliff draws a hard line at month 12. A cofounder who leaves at month 11 leaves with nothing vested. One who leaves at month 13 leaves with 13/48 of their shares.

Why founders put vesting on their own shares

• It protects the founders who stay. Unvested shares come back to the company and can go to a replacement.
• It makes an equal split safe. You can give a cofounder 50% on day one because they only earn it by staying.
• Investors usually check founder vesting in due diligence before they invest.
• It answers "what if one of us leaves?" before anyone wants to.

Choosing your vesting terms

• Length: four years is the common default.
• Cliff: one year is common. Founders who have already worked together sometimes agree a shorter one.
• Start date: it can be earlier than the share issue date, to credit work already done. Say a founder worked full-time for six months before incorporation; setting her vesting start date six months back puts her halfway to the cliff on day one.
• Frequency after the cliff: monthly (1/48 of the total) or quarterly.
• Acceleration: what happens to unvested shares if the company is sold.
• Repurchase terms: the price the company pays for unvested shares, often what the founder originally paid, and how long it has to act.

Put the agreed terms in your founders agreement, and settle the split itself with the equity split calculator.

Acceleration: single trigger vs double trigger

Acceleration makes some or all unvested shares vest early when certain events happen. It matters mostly when a company is acquired.

Buyers generally prefer double trigger, because a team that is fully vested at closing has less reason to stay. Single trigger is more generous to founders but can make the company less attractive to acquire. Which to choose depends on your investors and your negotiating position; a lawyer can tell you what is usual where you incorporate.

What happens when a cofounder leaves

The answer is in your documents, so read them before the conversation. In general:

• Before the cliff: nothing has vested, and the company can usually repurchase or cancel all of the leaver's shares.
• After the cliff: the leaver keeps vested shares, and the company can buy back unvested ones on the agreed terms.
• Leaver terms can change this. Good-leaver and bad-leaver clauses may alter the price or what counts as vested.

Say two founders each hold 5,000,000 shares on the standard schedule, and one leaves after 30 months. She has vested 30/48 of her shares, or 3,125,000. The company can buy back the other 1,875,000 and use them to recruit her replacement.

1. Calculate the exact vested amount from the vesting start date.
2. Exercise the repurchase right within the window your documents set.
3. Collect code, credentials, documents and IP.
4. Update the cap table and record the departure in writing.

If the leaver made an 83(b) election and forfeits shares, section 83(b) says "no deduction shall be allowed in respect of such forfeiture."

Common vesting mistakes

Check your documents for these gaps. Several start as a term that was agreed out loud and never written down:

• No vesting on founder shares at all, usually because it felt awkward to raise between friends.
• A vesting start date that was agreed verbally but never recorded, which turns every later calculation into an argument.
• Different schedules for different founders with no stated reason.
• Acceleration nobody discussed until an acquirer asked about it.
• A repurchase window that expired because nobody noticed a founder had left.
• A missed 83(b) deadline for US founders who received shares that vest.

Reverse vesting and the 83(b) election

Founders usually receive all their shares on day one, subject to the company's right to buy back unvested shares. This is sometimes called reverse vesting. It works like the schedule above, but because the shares are issued up front, US founders face a tax decision: the IRS says an 83(b) election "must be filed no later than 30 days after the date the property was transferred." Our 83(b) guide explains what it does and how to file.

Frequently asked questions