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Why Founders' Stock Should Vest Over Time

Written November 5, 2019

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Unfortunately, founding teams often breakup and having a former founder own a large portion of your company is not a good scenario. To avoid this problem set up a vesting schedule in your Stock Purchase Agreement.

The standard vesting schedule for startup companies is four years with a one year cliff and monthly vesting thereafter until you reach 100%. The one year cliff means that no stock is vested until the startup’s first anniversary. Thereafter, every month 1/48th of the stock vests.

If a founder leaves before the startup’s first anniversary, the founder leaves without any common stock. If a founder leaves after 15 months, the founder will have 31.25% of her common stock vested (25% after the first year, plus 2.083% for months 13-15). Thus, the missing founder leaves the startup with far fewer shares than if the founder's stock had vested immediately. This makes for much smoother sailing as your company grows and ensures you have enough equity to issue to a replacement founder and other early hires.

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