Founder Equity Structure / Vesting

Why should investors care and what should they ask for?

Author

Ray Koh
May 22, 2026

🎉 Happy Friday, funds family!

Founder vesting is one of the first (and most important) things an investor should look at when evaluating a deal. If a founder leaves the company early, do they walk away with their equity? Without vesting, the answer is yes, which is a problem from an incentive and future scaling perspective. ⚠️ 

But first…

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This article is part of the corporate series we are running that covers topics relating to an investment fund's investments into portfolio companies and the key items that matter both to the investors & companies throughout their entire lifecycles.

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➡️ Why does founder vesting matter to investors?

Investors write checks based on the expectation that the founders will stay and build the business. Let’s say a founder holds ~40% of a company's equity with no vesting and walks out six months after closing an investment (e.g., SAFE, Series A, etc.). The cap table is now burdened with a large block of what we call “dead” equity 💀held by someone who is no longer contributing. That dilutes everyone, misaligns incentives, and makes future fundraising from other investors harder. Equity vesting protects against that by ensuring that founders earn their equity over time by continuing to add value to the business.

➡️ What does a standard founder vesting schedule look like?

The market standard for startup company vesting is:

  • Four-year total vesting period.

  • One-year cliff (i.e., no equity vests until the first anniversary).

  • Linear monthly vesting after the cliff.

  • Unvested shares subject to repurchase (typically at the original purchase price instead of the new FMV) if the founder departs before fully vesting.

Some founder-friendly structures shorten the schedule to three years or provide credit for time already spent building the company pre-investment (by making the vesting commencement date earlier). Both are negotiating points.

Note: These vesting terms are different from how carried interest vests in respect of investment fund GPs, which we discuss here: 💼 Negotiating Co-GP Deals, Part 3

➡️ Why should investor equity generally be free of vesting?

Investors and founders are in fundamentally different positions. Investors contribute mostly capital, while founders contribute labor over time. That distinction drives the structure:

  • Investors fulfill their obligation at closing when the money is wired

  • Founders fulfill their obligation over time by building the business

  • Vesting exists to match equity earned to value delivered, and the investor's value is delivered on day one

That is why investor shares are typically fully vested and freely transferable at issuance, while founder shares are subject to time-based vesting and transfer restrictions. An investor who has paid fair value for equity should not be at risk of forfeiting it.

➡️ What is vesting acceleration?

Acceleration allows unvested founder shares to vest early upon certain trigger events. There are two types of acceleration, as outlined below.

“Double trigger” is the market standard. “Single trigger” can create misaligned incentives because it removes the founder's equity-based motivation to stay through a transition period after an acquisition.

  • Single trigger: All or a portion of unvested shares vest upon one event, usually a change of control (e.g., sale of the company).

  • Double trigger: Unvested shares vest only if two events occur, typically a change of control plus the founder's termination without cause (or resignation for good reason) within a defined window after closing.

➡️ How should investors diligence founder vesting?

Before closing, investors should confirm:

  • Whether all founder shares are subject to vesting (and if not, why).

  • What the vesting schedule is and how much has already vested.

  • Whether there are any acceleration provisions and what triggers them.

  • Whether the company has repurchase rights on unvested shares at cost (or fair market value).

  • Whether any founders received early vesting “credit”, and on what basis.

  • Whether proper securities and tax filings (such as 83(b) elections) have been made.

/ WRAPPING THE CASE

  1. Founders should expect to vest their equity over time, typically four years with a one-year cliff.

  2. Investors should expect their equity to be fully vested at issuance, because their capital contribution is complete at closing.

  3. If there is going to be acceleration, it should be “double trigger” (for founders and not others) unless there is a specific reason to deviate.

  4. Diligence on these items should happen early, not at the tail end of a closing checklist.

Thanks for reading, everyone.

Have a great weekend! 🙌 

/ JURY TRIAL

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