Definition
Vesting
Vesting is the schedule over which an employee or founder earns the right to their granted equity or options.
Equity typically vests over four years, meaning a person must stay with the company for the full period to earn all their shares; leaving early forfeits the unvested portion. Vesting aligns incentives and prevents people from walking away with large stakes after a short tenure.
Most vesting schedules include a one-year cliff (nothing vests until the first anniversary) followed by monthly or quarterly vesting. Founder vesting is increasingly common in India, often required by investors so that a departing co-founder does not retain a large idle stake.
Related terms
- ESOP PoolAn ESOP pool is the block of equity a startup sets aside to grant as stock options to employees.
- Founder VestingFounder vesting is the arrangement under which founders' own shares vest over time, so a departing founder forfeits unvested equity.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.