What are customary stock vesting terms for startup founders?


Typically, shares issued to startup founders at formation are all initially subject to vesting. In other words, the shares are “unvested shares”. (See Why do startup founders subject their shares to vesting?)

Vesting Terms

Founder vesting terms customarily provide for:

  • Vesting of unvested shares each month over a period of 4 years with a 1 year vesting “cliff”
  • 100% double trigger vesting acceleration

Frequently Asked Questions

What vesting terms are specified in Clerky’s Post-Incorporation Setup templates?

Each Clerky template may vary so be sure you understand the terms provided for in the template you are using. The stock purchase agreement in Clerky's standard Post-Incorporation Setup template typically includes:

  • A default “Vesting Provision” that provides for (i) vesting of unvested shares each month over a period of 4 years with a 1 year vesting cliff and (ii) commencement of vesting on the date the shares are issued. Though modifications to the default “Vesting Provision” are uncommon, it is possible for experienced users to modify the vesting terms, usually in consultation with an attorney
  • A 100% Double Trigger Acceleration provision that cannot be modified by a user

What is a vesting cliff?

A vesting provision that defers vesting for a specified period of time, typically one year. If a founder’s service with a startup terminates prior to the vesting cliff date, then the founder does not vest in any of the shares and the company has the option to repurchase all of the shares from the founder.

What is double trigger vesting acceleration?

A vesting acceleration provision that is triggered only if BOTH of the following events occur: (1) the company is acquired AND (2) the founder is subsequently terminated without cause.

What vesting terms are typical if a founder has been working full-time on the startup for a considerable period of time before incorporating?

While vesting of a founder's shares is the norm, it is also common for a founder's vesting terms to credit the founder for at least some of the time spent working full-time on the startup prior to the issuance of the founder's shares. For example, if a founder worked full-time on a startup for 12 months prior to the founder's shares being issued, 25% of the founder's shares may be issued as fully vested with the remaining 75% subject to vesting over the subsequent 36 months. We recommend you consult an attorney for assistance with any modification to standard vesting terms.

Examples

Assumptions

At formation, Acme Co. issues 4,000,000 unvested shares to Founder Alice. The shares are issued on January 1, 2014 when Alice pays the company $0.00001 per share for a total purchase price of $40.00. Alice's vesting terms are the default specified in Clerky's standard Post-Incorporation Setup template, i.e.:

  • Vesting of unvested shares each month over a period of 4 years with a 1 year vesting cliff
  • Commencement of vesting on the date the shares are issued (i.e., January 1, 2014)
  • 100% double trigger vesting acceleration

Scenario 1 (Alice's service terminates prior to vesting cliff date)

If Founder Alice’s service with Acme Co. terminates prior to January 1, 2015, Acme Co. has the option to pay $40.00 to Founder Alice to repurchase all 4,000,000 unvested shares.

Scenario 2 (Alice's service terminates on the vesting cliff date)

If Founder Alice’s service with Acme Co. terminates on January 1, 2015, Founder Alice is vested in 1,000,000 shares and Acme Co. has the option to pay $30.00 to Founder Alice to repurchase the 3,000,000 unvested shares.

Scenario 3 (Alice's service terminates after the vesting cliff date)

If Founder Alice’s service with Acme Co. terminates on July 1, 2015, Founder Alice is vested in 1,800,000 shares and Acme Co. has the option to pay $22.00 to Founder Alice to repurchase the 2,200,000 unvested shares.

Scenario 4 (Alice's service terminates without cause after acquisition)

If Acme Co is acquired on February 1, 2016 and Founder Alice is then terminated without cause on October 1, 2016, the vesting of 100% of the 1,250,000 unvested shares is accelerated so that Founder Alice is vested in all 4,000,000 shares as of October 1, 2016.