If you’re building a startup with co-founders, this is one of the most important (and least glamorous) agreements you’ll need to sign. The Founder’s Vesting Agreement defines how equity is earned—or retained—based on actual commitment to the company.
And yes, it will save you a lot of problems down the road.
What is vesting?
Vesting is a legal mechanism that conditions the acquisition—or retention—of shares on the person’s continued involvement with the startup for a set period. This ensures that shares are not granted upfront, but are earned over time and contribution.
It’s used both with co-founders and key employees. But in this post, we’ll focus on the founder-to-founder case, where the risk of future conflict is even greater if not addressed from the start.
Common elements of a vesting structure
- Cliff (minimum commitment period): This is the initial period during which no shares are vested. If someone leaves before this time ends, they walk away with nothing. The standard is a 1-year cliff.
- Schedule (vesting timeline): After the cliff, shares start vesting in periodic installments (monthly, quarterly, etc.) over a typical period of 4 years. For example:
- Year 1: 0% (vesting starts only after completing the year)
- Years 2–4: 1/36 monthly (or as agreed)
- Triggers (accelerators): In certain events—such as a sale of the company (exit), merger, or acquisition—vesting can be accelerated. There are two types:
- Single Trigger: vesting accelerates fully or partially with a specific event.
- Double Trigger: requires two events, e.g., a sale and involuntary termination.
What is reverse vesting?
Reverse vesting is used when founders have already been issued shares. Instead of waiting to grant equity, in this case the founder agrees to return or forfeit part of their shares if they don’t stay for the agreed term.
It’s particularly useful when equity was assigned informally early on, before formalizing the startup’s legal structure. Reverse vesting helps clean up the cap table and protect both the team and future investors.
Why do you need a Founder’s Vesting Agreement?
- Because founders might leave… and take unearned equity with them.
- Because investors will require it: no one funds a team without long-term alignment.
- Because it prevents internal disputes (which can get very expensive).
- Because it aligns everyone’s incentives over time.
- Because it helps build a startup on solid, scalable foundations.
At Lawi, we draft Founder’s Vesting Agreements tailored to your startup’s stage, business model, and long-term vision. We also help you implement reverse vesting if equity has already been assigned and you need to get it properly regulated.