Founder Vesting Schedules and Cliffs

Nearly a quarter of two-founder teams split up within their first four years, and the first-year breakup rate nearly doubled between 2015 and 2024, from 4% to 7.5% of teams (Carta, Founder Ownership Report). Vesting exists for exactly that statistic: it decides what a founder who leaves early keeps, rather than leaving the answer to whoever is still there when it happens. Without it, a founder who contributes three months of work before walking away keeps the same stake as one who stays for the next decade.

The mechanics are simple once seen once, and almost every agreement converges on the same schedule for the same reason. This is general information; a specific grant should be put in writing with a lawyer who also handles the tax election that goes with it, covered separately below.

The standard schedule vests a founder's stock over four years with a one-year cliff: nothing vests during the first twelve months, a quarter of the total grant vests all at once on the first anniversary, and the remaining three-quarters vests in equal monthly installments (1/48 of the original grant each month) for the following three years (Y Combinator). A founder who leaves at month eleven keeps nothing extra for the effort; a founder who leaves at month thirteen has already cleared the cliff and keeps a proportional share.

The cliff is not a penalty bolted onto vesting; it is the part that actually protects the company. Without it, a founder who leaves after a single month would still vest a small sliver of stock, and a company that brings on and quickly loses several people this way ends up with a capitalization table cluttered with tiny stakes held by people who no longer work there. A full year with nothing vested makes an early, clean exit genuinely clean.

Two variations come up often enough to name. Single-trigger acceleration vests some or all of a founder's remaining shares immediately if the company is acquired, regardless of whether the founder stays on afterward; double-trigger acceleration vests them only if the founder is also terminated, or the role is materially changed, within a set window after the acquisition. Acquirers generally prefer double trigger, since single trigger lets a founder walk away fully vested the day after a deal closes with no incentive to help the new owner through the transition; most negotiated founder agreements land on double trigger for that reason.

Vesting on stock already owned works in reverse from the option-style grant most employees receive. A founder typically owns the shares outright from day one and grants the company a repurchase right over the unvested portion that lapses on the same schedule, rather than receiving new shares as time passes. That structure, often called reverse vesting, is what makes an 83(b) election relevant on day one rather than years later: the founder is taxed on the stock's value at grant, while it is still worth very little, instead of being taxed as each tranche later vests at a higher value. The mechanics and the 30-day deadline for that election are covered in how to file an 83(b) election.

An LLC taxed as a partnership reaches a similar result differently, since a member typically holds a profits interest rather than a share of stock; the vesting is still a repurchase or forfeiture right written into the operating agreement, but the tax treatment of a profits interest carries its own rules and is worth a separate, careful look before using one to replicate a stock-style vesting schedule.