Founder Vesting Explained: Cliffs, Reverse Vesting and What Happens When Someone Leaves

A typical founder vesting schedule runs for four years with a one-year cliff. Nothing vests during the first 12 months; at the first anniversary, 25% vests at once, and the remaining 75% usually vests monthly over the next 36 months, as illustrated in Mintz’s worked vesting example. If a founder’s service ends before the cliff, all shares covered by that schedule ordinarily remain subject to the company’s contractual repurchase right.

For founders, this arrangement commonly operates as reverse vesting: the founder owns the shares upfront, while the company retains a right to repurchase the unvested portion. Continued service reduces that portion, but the signed terms—not the label “vesting”—determine the start date, repurchase procedure, treatment of a departure and any acceleration during an acquisition.

What the four-year schedule changes

Vesting progressively releases shares from the company’s repurchase right. A founder who completes the full schedule generally keeps the entire grant after leaving; an earlier departure leaves some or all of the grant exposed to repurchase under the applicable agreement.

Startups.com’s founder-vesting overview identifies four years with a one-year cliff as the common startup structure and describes restricted stock issued near incorporation with a company repurchase right over the unvested portion. This is a market convention, not a rule that applies without signed terms.

The schedule applies to a stated number of shares, not to a guaranteed ownership percentage. Later financing, option-pool changes and new issuances can dilute a founder’s percentage ownership while the original number of restricted shares continues vesting.

A month-by-month view

With monthly vesting after the cliff, each completed month after month 12 releases another 1/48 of the total grant, approximately 2.083 percentage points. The cumulative position is:

• Months 0–11: 0%; month 12: 25%.
• Months 13–24: 27.083%, 29.167%, 31.25%, 33.333%, 35.417%, 37.5%, 39.583%, 41.667%, 43.75%, 45.833%, 47.917%, 50%.
• Months 25–36: 52.083%, 54.167%, 56.25%, 58.333%, 60.417%, 62.5%, 64.583%, 66.667%, 68.75%, 70.833%, 72.917%, 75%.
• Months 37–48: 77.083%, 79.167%, 81.25%, 83.333%, 85.417%, 87.5%, 89.583%, 91.667%, 93.75%, 95.833%, 97.917%, 100%.

For a conditional example involving 4.8 million shares, 1.2 million vest at month 12 and another 100,000 vest after each completed month through month 48. Confirm whether the agreement measures monthly anniversaries, calendar month-end dates or another convention; leaving near a vesting date can change the result if daily prorating is unavailable.

How reverse vesting and repurchase work

Reverse vesting usually does not involve issuing a new batch of shares every month. The founder holds restricted stock from the outset, and the company’s repurchase right lapses over time.

When service ends, the company may have an option, rather than an obligation, to buy the unvested shares. The agreement should identify the trigger, exercise window, notice procedure, price, payment method and adjustments for stock splits. Founders should not assume that unvested shares return automatically unless the terms provide for automatic repurchase or forfeiture.

The repurchase price for unvested founder stock may be the original purchase price rather than its later fair market value. Separate provisions may restrict transfers of vested shares or grant rights of first refusal, so those terms should be reviewed independently from the vesting repurchase right.

US restricted stock also creates a time-sensitive tax decision. IRS Publication 525 says an eligible Section 83(b) election includes the restricted property’s value, minus the amount paid, in income for the year of transfer, must be filed no later than 30 days after the transfer and cannot be made for a statutory or nonstatutory stock option. Founders should obtain prompt tax advice for their specific instrument.

What happens when a founder leaves

The result depends on completed service and the agreement’s departure provisions, not simply on whether the person retains the title “founder.” Under an unmodified four-year schedule with monthly vesting after the cliff, the following conditional outcomes illustrate the mechanics:

• Departure at month 8: no shares have vested, so the entire restricted grant remains available for repurchase if the company has that right and exercises it correctly.
• Departure at month 12: 25% is vested if the first anniversary has been completed; 75% remains unvested.
• Departure at month 18: 37.5% is vested—12/48 at the cliff plus 6/48 for the following six completed months—and 62.5% remains unvested.
• Departure at month 30: 62.5% is vested and 37.5% remains unvested.
• Departure after month 48: the time-based schedule is complete, although separate transfer restrictions may continue.

Resignation, dismissal without cause, termination for cause, death and disability do not have to produce identical outcomes. Co-founders need to define whether service continues when a founder becomes a consultant, reduces working time or takes leave, as well as the precise date on which service ends for vesting purposes.

Acceleration changes the acquisition outcome

An acquisition does not automatically vest every remaining share. Acceleration applies only when the governing agreement provides for it and defines the trigger, the amount accelerated and any relevant protection period.

Single-trigger acceleration is tied to one specified event, often a change of control. Double-trigger acceleration commonly requires both a change of control and a qualifying termination without cause or resignation for good reason. Orrick’s acceleration guidance explains that the double-trigger structure can protect a holder dismissed after an acquisition while preserving the acquirer’s incentive to retain the team.

The negotiation should specify whether acceleration is full or partial, what constitutes a change of control, how “cause” and “good reason” are defined, how long the second-trigger window lasts and what happens if the buyer assumes, substitutes or cashes out the shares. Merely writing “double trigger” does not resolve those economic details.

Prior-service credit and financing re-vesting

A founder who worked before incorporation can negotiate an earlier vesting commencement date, an initially vested portion or a shorter remaining schedule. The founders should agree which work counts and document the exact credit rather than relying on an informal understanding.

For example, giving six months of prior-service credit could allow a founder to reach a one-year cliff six months after incorporation, but only if the commencement date and cliff language produce that result. Corporate approvals, the stock purchase agreement and the cap table should reflect the same treatment.

A financing may introduce a proposal to place additional founder shares under vesting or extend the remaining period. Before accepting re-vesting, model the vested amount at closing, the newly restricted amount, credit for service already performed and any acceleration that would apply after a sale.

Questions to settle before signing

Co-founders should give counsel an agreed commercial instruction sheet before issuing shares or completing financing. At minimum, resolve these questions:

1. Which shares are restricted, and what is each founder’s vesting commencement date?
2. What are the term, cliff and post-cliff vesting frequency?
3. Does pre-incorporation work receive credit, and how is that credit expressed?
4. What ends service, and how are consulting, reduced hours, leave, death and disability treated?
5. Is repurchase optional or automatic, at what price, and within which notice and payment window?
6. Do resignation, termination without cause and termination for cause lead to different results?
7. Is acceleration single-trigger or double-trigger, partial or full, and which definitions govern it?
8. Who handles approvals, cap-table updates and records of tax filings?

Test the proposed terms against departures at months 8, 12, 18 and 30, plus an acquisition before month 48. If the calculated outcomes differ from the co-founders’ expectations, resolve the wording before the shares are issued or the financing closes.

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