Vesting and cliffs

Ada and Ben each own 4,000,000 shares of Northwind. Eighteen months later, Ben quits to take a job at a large company. Does he keep half of Northwind? Without vesting, he does. Ada then does all the work, and Ben gets half of the result. With a standard vesting schedule, Ben keeps 1,500,000 shares and Ada owns 72.7%. This lesson shows the math.

Founders own their shares from day one

Vesting is a schedule that gives you your shares in parts over time, as you stay with the company. Founders use a version with a small twist. Each founder buys all of the founder stock on the first day. The company keeps a repurchase right: if the founder leaves, the company can buy back the shares that did not vest yet. The price is usually the lower of the price that the founder paid and the fair market value. This structure is reverse vesting.

Thus you own your shares from the first day. The company has only a right to buy back the unvested shares if you leave. Your stock purchase agreement tells you if you can also vote the unvested shares.

Founders can get credit for work that they did before the company existed. In that case, the vesting starts on an earlier date than the incorporation.

The standard schedule: 4 years with a 1-year cliff

The standard schedule has three parts:

For the first 12 months, no shares vest.
At month 12, 25% of the shares vest at one time. This is the cliff.
After the cliff, 1/48 of the shares vest each month until month 48.

Months 0 to 11:  Vested = 0
Months 12 to 48: Vested = Shares × month ÷ 48
After month 48:  Vested = Shares
Unvested = Shares − Vested

Predict first

Ben holds 4,000,000 shares on the standard schedule. He leaves after 18 months. How many shares does he keep?

Type a guess before you continue. A guess first, even a wrong one, makes the answer easier to remember.

For Ben’s 4,000,000 shares, the schedule gives these numbers:

Month	Vested	Unvested
11	0	4,000,000
12	1,000,000	3,000,000
13	1,083,333	2,916,667
18	1,500,000	2,500,000
24	2,000,000	2,000,000
36	3,000,000	1,000,000
48	4,000,000	0

Why a cliff? It protects the founders who stay. If a cofounder leaves after six months, nothing vested, and the company buys back all of the shares for a few dollars. The team does not carry a partner who left early. With no cliff, that cofounder leaves with 12.5% of the shares after six months.

Schedules vary. Stripe Atlas uses 4 years with a 1-year cliff as its default. The law firm Perkins Coie says that founder stock often has no cliff. Gunderson, another law firm, said in April 2025 that some teams now choose schedules longer than 4 years. The reason is that most startups need much more than 4 years before an exit.

When a cofounder leaves

Pick the month in which Ben leaves. Look at his vested shares, the buyback price, and the ownership after the buyback.

Simulator

A cofounder leaves: what does he keep?

Ada and Ben each bought 4,000,000 shares at $0.00001 a share, on a 4-year schedule. Pick the month in which Ben leaves.

Ben leaves after18 months

Schedule

Ben keeps: 1,500,000; Vested, 37.5%
Bought back: 2,500,000; Unvested, 62.5%
Buyback price: $25; 2,500,000 × $0.00001
Ben owns: 27.3%; Without vesting: 50%

Ownership after the buyback

Ada
Ben, who left

Ben keeps 1,500,000 vested shares. Northwind buys back his 2,500,000 unvested shares for $25. Ben now owns 27.3%, and Ada owns 72.7%.

Without vesting, Ben keeps all 4,000,000 shares and 50% of Northwind, and Ada does the rest of the work for both of them.

Worked example · step 1 of 5

Ben leaves Northwind at month 18

1
Find the vested shares
Ben is past the cliff, so 18/48 of his shares vested.
```
Vested = 4,000,000 × 18 ÷ 48
       = 1,500,000
```

Three details decide if the buyback works:

The right has a time limit. Montague Law says that “many forms use ninety days.” If the company does not use the right in time, the right expires and the founder keeps the shares.
The company must pay. Stripe gives a warning. Years later, a company can find shares “worth several hundred million dollars” in doubt “because someone forgot to write a $30 check.”
Vested shares stay with the founder. Transfer limits apply, such as the right of the company to buy shares first. But the company cannot simply take vested shares back.

A founder who leaves usually resigns from all positions in one letter. If the founder does not resign, the board can remove the founder as an officer. In Delaware, only the stockholders can remove a director. Under §141(k) of the Delaware law, the holders of a majority of the voting shares can remove a director, with or without cause.

Work it out

Ben leaves Northwind after 30 months. How many of his 4,000,000 shares are vested?

Work it out

Same departure at month 30. After the buyback, what percentage of Northwind does Ada own? (Ada holds 4,000,000 shares.)

Do my unvested shares count in my ownership?

Yes. With reverse vesting, the company issued all of your shares on day one. They are issued and outstanding, so they count in the cap table and in your percentage. If you leave, the company buys back the unvested shares, and the total becomes smaller. In the example above, the total fell from 8,000,000 to 5,500,000 shares.

Why investors insist on vesting

Investors buy a part of a company that needs years of work from its founders. If a founder can leave with all of the shares, the investors pay for work that nobody will do. Thus investors look for founder vesting in due diligence. If the founders have none, investors can make them vest again at the financing. The lesson on control terms covers this founder re-vesting.

Vesting protects the founders too. The founder who stays does not carry a partner who left. The shares that the company buys back can go into the option pool, and they can pay the next hire.

Acceleration: when a sale vests shares early

A buyer can purchase the company before the founders are fully vested. Acceleration is a rule that makes unvested shares vest early when specified events occur. It has two forms:

Single-trigger acceleration. One event causes acceleration, usually the sale of the company.
Double-trigger acceleration. Two events must occur. Usually, a buyer purchases the company, and the company terminates the founder without “cause.” A resignation for “good reason” can also be the second event.

The second event must occur in a set window. The law firm Cooley says that this window is usually 9 to 18 months after the closing of the sale. Some agreements also include a short window of 3 months or less before the closing.

Investors and buyers do not like single trigger. A buyer pays for a company partly to get its team. If the shares of the founders vest at the sale, the founders have no share-based reason to stay. Double trigger keeps that reason and still protects the founders if the buyer terminates them.

Here is an example. A buyer purchases Northwind at month 30 and terminates Ben without cause at month 32, inside a 12-month window:

Vested by time = 4,000,000 × 32 ÷ 48
               = 2,666,667
Accelerated    = 4,000,000 − 2,666,667
               = 1,333,333
Ben keeps      = 4,000,000

With single trigger, the 1,500,000 shares that are unvested at month 30 vest at the closing, if Ben stays or not.

Look at the same sale from the side of the buyer. With double trigger, Ben’s 1,500,000 unvested shares keep vesting at 83,333 a month, but only while he works for the buyer. He is fully vested after 18 more months. Those shares are a reason for Ben to stay, and the buyer pays nothing extra for that reason. With single trigger, that reason is gone on the day of the sale.

Change the trigger, the sale month, and what happens after the sale.

Simulator

Acceleration: what vests when a buyer purchases the company

Ben holds 4,000,000 shares on a 4-year schedule with a 1-year cliff. The double-trigger window is 12 months after the sale.

Ben’s acceleration

Sale after30 months

A buyer purchases Northwind.

After the sale

Termination after the sale2 months

The buyer terminates Ben without cause.

Vested at the sale: 2,500,000
Accelerated: 1,333,333
Ben keeps: 4,000,000; At the termination
Unvested, lost: 0

The buyer terminates Ben without cause 2 months after the sale, inside the 12-month window. That is the second trigger, so his 1,333,333 unvested shares vest at once. Ben keeps all 4,000,000.

Quiz · question 1 of 6

Test what you learned

A founder has 4,000,000 shares on the standard 4-year schedule with a 1-year cliff. How many shares are vested after 18 months?

In this lesson you will learn