Deal Terms
Founder Vesting
A requirement that founders earn their equity over time rather than owning it outright from day one.
Founder vesting ensures that founder equity is earned over a service period, typically 4 years with a 1-year cliff. VCs almost universally require founder vesting to protect against a co-founder leaving early and retaining a large equity stake without contributing to the company's growth. Even founders who've been working for years pre-funding may negotiate accelerated vesting or credit for time served.
In Practice
Two co-founders each have 30% equity on 4-year vesting. After the seed round, one founder leaves at month 8 (before the 1-year cliff) and forfeits their entire 30%, which returns to the option pool.
Why It Matters
Founder vesting protects all stakeholders from free-rider problems. Without it, a departing founder could hold a large equity block while contributing nothing to the company's future success.
Related Concepts
Further Reading
How to Read Your Startup's Cap Table as an Employee
Your startup's cap table holds the answers to what your equity is really worth. Here's how to read it, understand your ownership percentage, and see where you stand in the stack.
How to Negotiate a Term Sheet as a First-Time Founder
Your first term sheet is exciting and terrifying. Know what's negotiable, what's standard, and the practical tactics for pushing back on liquidation preferences, board seats, and protective provisions.
How to Negotiate Your Term Sheet: A Founder's Playbook
A tactical guide to negotiating your startup term sheet — which terms matter most, where to push back, and how to protect your interests without killing the deal.
How to Read a Term Sheet: A Practical Breakdown
Term sheets aren't designed to be readable. Here's a section-by-section guide to what matters, what's standard, and what should make you walk away.
Term Sheet Explained: Every Clause Founders Must Know
Term sheets are dense, jargon-heavy, and consequential. Here's a founder-friendly breakdown of every major clause and what it means for your company.
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