Vesting Schedule
The timeline over which equity ownership is earned, typically over 4 years.
Definition
A vesting schedule defines the timeline over which an equity holder earns full ownership of their shares or options. The standard schedule for founder and employee equity is 4-year vesting with a 1-year cliff — meaning no shares vest in the first year, then 25% vest at month 12, followed by monthly or quarterly vesting of the remaining 75% over three more years. Unvested shares or options are forfeited if the holder leaves the company.
Why It Matters
Vesting aligns long-term commitment with equity ownership. Without vesting, a co-founder who leaves after 6 months could walk away with significant equity, damaging the remaining team's motivation and the company's cap table. Investors require vesting on all founder equity as a condition of investment.