Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
Earning shares over time
Founder vesting applies a schedule to founders’ equity so it is earned through continued involvement, not owned fully on day one. A common structure is 4-year vesting with a 1-year cliff — nothing vests until you complete one year, then equity vests monthly/quarterly thereafter. The shares are issued, but subject to buy-back of the unvested portion if you leave.
Why it protects everyone
Vesting solves the departing-founder problem: without it, a co-founder who quits after six months keeps their entire stake, leaving the remaining founders to do all the work while the leaver holds dead equity — and that dead equity also deters investors. With vesting, the unvested shares return to the company, keeping the cap table aligned with who’s actually building. Investors almost always require it. Put vesting in the founders’ agreement from the start.
A worked example
Example: two founders each hold 50% on 4-year vesting with a 1-year cliff. One leaves after 18 months — about 37.5% of their shares have vested, and the rest return to the company, restoring fairness for the founder who stays. Had there been no vesting, the leaver would keep the full 50%. This single mechanism prevents a common startup disaster. Our team can implement founder vesting properly.