Founder vesting, cliffs and acceleration
The core idea#
Vesting means founders earn their shares over time instead of owning them outright on day one. If a founder leaves early, the shares they have not yet earned go back to the company. That is the single mechanism that makes an imperfect equity split survivable. It protects the founders who stay from carrying a departed co-founder's dead equity, and it is the first thing a serious investor checks. Cliffs, acceleration and leaver terms are the details that decide what happens in the hard cases: someone leaves in month nine, the company is sold, or a founder is pushed out.
Stage: formation, then revisited at seed and Series A · Lens: Core, with deeptech specifics · Reading time: about 30 minutes
Who this is for#
Founding teams putting vesting in place at incorporation.
Founders asked by a seed investor to re-vest.
Spinout teams with part-time academics on the cap table.
What you leave with#
The standard schedule and why it exists.
What acceleration investors accept.
How to write fair leaver terms.
How deeptech timelines change the defaults.
The exact mechanics in India, the US and the UK.
How vesting works#
The standard schedule#
The default for founders in venture-backed companies is the same as for employees: four years with a one-year cliff (Carta).
Months 1 to 11: nothing vests.
Month 12 (the cliff): 25% vests at once.
Months 13 to 48: the remaining 75% vests in equal monthly slices, 1/48 of the total each month.
So a founder who leaves after 18 months keeps about 37.5%: the 25% cliff plus six more months (Stripe).
The parts you can change#
| Term | Default | Common variations | When to vary it |
|---|---|---|---|
| Total period | 4 years | 3 years (credit for time already spent); 5 to 6 years | Five- or six-year schedules are becoming more popular, according to Carta (Carta). Consider longer schedules where the R&D path to a product is long. |
| Cliff | 12 months | 6 months; no cliff with vesting credit | Drop or shorten the cliff when founders have already worked together for a year or more. |
| Frequency after cliff | Monthly | Quarterly | Monthly is fairer and the norm for founders. |
| Start date | Date of share issue | Earlier "vesting commencement date" | Backdate to reflect real time already worked, often 6 to 12 months. |
| Upfront vested portion | 0% | 10 to 25% vested at signing | Credit for pre-incorporation work, IP or a long minus-one phase. |
Why founders should want it, even if they trust each other#
Founders leave more often than they expect. Carta's data shows somewhat under a quarter of two-founder teams split up within four years, and first-year breakups have nearly doubled over the past decade (Carta Founder Ownership Report).
It protects the founders who stay. Without vesting, a co-founder who leaves in month eight keeps a full stake. The remaining team then works for years partly for someone who is no longer there. Investors call this "dead equity", and many will not invest until it is fixed.
Investors will require it anyway. If there is no vesting at incorporation, a seed or Series A investor will usually ask founders to put their shares under vesting as a condition of investing, often on terms the investor drafts. Setting it up yourselves first lets you choose the terms.
It makes the split conversation easier. An imperfect split matters less when everyone must earn their shares.
Credit for time already served#
For deeptech teams this is often the most important term. A minus-one phase can run six months to two years before incorporation.
Backdating the vesting commencement date to when full-time work actually started is common and defensible, provided you can show it (emails, grant reports, lab notebooks).
Alternatively, vest a portion upfront at signing, often 10 to 25%, and put the rest on a four-year schedule.
Don't overdo it. An investor at seed will want a meaningful unvested portion remaining. As a rule of thumb, expect investors to want most founder equity still unvested at the time they invest, so it continues to bind founders through the period they are funding.
What a founder keeps, by when they leave#
standard founder vesting · 4 years, 1-year cliff, monthly after
The cliff is a cliff in both directions. A founder who leaves at month 11 keeps nothing, while one who stays a few more weeks keeps a quarter. That asymmetry is why cliffs cause friction near the 12-month mark, and why many teams with real pre-incorporation history shorten or drop the cliff in exchange for backdating.
Acceleration: what happens to unvested shares on a sale#
Acceleration makes some or all unvested shares vest early when a defined event happens. The event that matters is almost always a sale of the company (a "change of control").
The two structures#
| Structure | Triggers | Effect | Market view |
|---|---|---|---|
| Single trigger | The sale alone | Unvested shares vest at closing | Disliked by acquirers and therefore investors: the founder can leave on day one, so the buyer pays less or demands re-vesting (Morrison Foerster) |
| Double trigger | The sale, and then the founder is terminated without cause or resigns for "good reason" within a set window (often 12 months) | Unvested shares vest only if the founder loses their role | The market standard; protects founders from being fired post-sale while keeping their incentive to stay |
| Hybrid | Part at the sale, the rest on a double trigger | For example, 25 to 50% at closing, the remainder on termination | Sometimes negotiated by founders with leverage (Launchrock) |
How much#
The law firm Fenwick & West has described 100% double-trigger acceleration as standard for founders. Many VCs, however, treat 50%, or one year's worth, as standard. Founders are advised to push for 100%, because it costs investors nothing unless the founder is pushed out after a sale (Holloway, citing Fenwick & West).
In practice, founders with negotiating leverage at seed or Series A can usually get full double-trigger. Partial single-trigger is harder and tends to signal an unusual deal.
The definitions that decide the outcome#
The percentages get the attention, but the definitions decide what founders actually receive:
"Good reason" should include a material cut in pay, a material reduction in role or reporting line, and a forced relocation over a set distance. Without these, a buyer can make the job unbearable and wait for a resignation.
"Cause" should be narrow and specific: fraud, a serious crime, wilful misconduct, or a material breach not fixed after notice. Avoid vague terms like "poor performance".
The window: 12 months after closing is common. Check whether it also covers a short period before closing, in case a founder is dismissed in anticipation of a sale.
Deeptech note#
In a deeptech acquisition, the buyer is often paying for the team's know-how as much as the IP. Expect the acquirer to ask key scientists to re-vest part of their proceeds or take retention packages regardless of what your documents say. Strong double-trigger terms improve your starting position in that negotiation; they don't remove it.
Leaver terms: what happens when someone leaves#
Vesting decides how many shares a departing founder has earned. Leaver terms decide what price the company pays to take back the rest, and sometimes whether vested shares are bought back too.
The standard categories#
| Category | Typical triggers | Unvested shares | Vested shares |
|---|---|---|---|
| Good leaver | Death, serious illness or disability; dismissal without cause; often resignation after a minimum period | Returned at nominal value or cost | Kept, or bought at fair market value |
| Bad leaver | Dismissal for cause such as fraud or gross misconduct; material breach of the agreement; breach of non-compete | Returned at nominal value | Often bought back at the lower of cost and fair value, sometimes nominal value |
| Intermediate leaver (some agreements) | Voluntary resignation before a set date | Returned at nominal value | Part at fair value, part at the lower figure |
In UK practice, good leavers usually receive fair market value for shares they must sell, and bad leavers the lower of fair value and nominal value (RPC). Under the latest BVCA model articles, which most UK VCs start from, voluntary resignation is no longer automatically a bad-leaver event (Ashfords).
What founders should negotiate#
Keep vested shares on a clean exit. A founder who resigns after two good years should keep what they have earned. Avoid clauses that let the company buy back vested shares at nominal value for anything other than genuine misconduct.
Define bad leaver narrowly. Limit it to cause and material breach. Resignation alone should not count. Avoid board discretion over classification unless it is "acting reasonably" with a defined process.
Set the fair value method in advance. An independent valuer, or the price of the last funding round, avoids a fight about valuation when relations have already broken down.
Who buys back. The company, the remaining founders, or the ESOP pool can take the shares. Returning them to the pool lets you re-grant them to a replacement hire.
Part-time founders and professors#
Tie vesting to a written role, not to employment. A professor is not an employee of the company, so a vesting clause that says "while employed" won't work. Use "continuous service" defined as fulfilling a stated role, for example chief scientific adviser at a stated number of days per month, or a board or SAB seat.
Plan for a role change. If the PI's time drops, for example on sabbatical or because of new university rules, the agreement should say what happens: vesting pauses, slows or stops.
Make university-required departures a good-leaver event. If the institution's conflict-of-interest rules force the professor to step back, they should not be treated as a bad leaver.
Deeptech specifics#
Long R&D timelines#
The issue. A four-year schedule assumes four years is long enough to build most of the value. In hardware, materials, biotech or climate tech, the first product may take five to eight years. Founders can be fully vested well before the company reaches its main value-creating milestones.
What teams do.
A longer schedule. Five or six years, which Carta reports is becoming more popular. This suits teams that expect a long road and want vesting to match it.
Refresh grants later. Keep four years now, and have the board top up founders with new option or share grants at Series A or B. This is the more common route, and it keeps the formation documents standard.
Our view: keep the standard four years at formation unless your investors ask otherwise. It is easier to add incentives later than to explain a non-standard schedule at every round.
Milestone-based vesting#
What it is. Some or all shares vest on technical or commercial events ("first pilot plant running", "regulatory filing accepted") instead of, or as well as, time.
Why it's tempting in deeptech. Progress is lumpy and milestone-driven.
Why to use it sparingly.
Milestones are hard to define precisely and invite disputes about whether they've been met.
Milestones beyond the founder's control (a regulator's timeline, a partner's decision) can make founders lose shares for reasons that have nothing to do with their effort.
In the US, performance vesting can complicate tax treatment. Get advice.
Where it works: for a part-time academic founder, a small tranche tied to clear deliverables such as a technology transfer or a training programme for the team can be cleaner than time-based vesting.
Re-vesting at seed or Series A#
What happens. If founders are already fully or largely vested when a lead investor arrives, typically after a long minus-one phase, the investor may ask them to put some vested shares back under a new schedule.
Typical ask. That a meaningful share of founder equity, often a quarter to a half, is unvested going forward, with credit for time served.
How to negotiate.
Agree credit for real time served.
Agree acceleration on a double trigger.
Make sure good-leaver terms protect vested shares if you are removed without cause.
Make sure all founders are treated consistently.
Grant-funded periods#
If the founders were paid from a research grant during the minus-one phase, that is still time spent building the company's foundation. It can count toward backdated vesting. Check the grant terms, though: some grants restrict commercial activity during the funded period, which affects both IP ownership (2.01) and how you describe the history to investors.
Making it work in India, the US and the UK#
General information, not legal or tax advice.
| India (private limited) | US (Delaware C-corp) | UK (private limited) | |
|---|---|---|---|
| How vesting is built | Reverse vesting: founders own all shares; the company or other shareholders hold a call option or buy-back right over unvested shares | Restricted stock: founders buy shares subject to the company's repurchase right over unvested shares | Leaver provisions in the articles and shareholders' agreement force a transfer of unvested shares |
| Where it lives | Shareholders' agreement and articles of association | Restricted stock purchase agreement | Articles, plus shareholders' agreement |
| Buy-back price for unvested shares | Usually face value | Usually the original purchase price | Usually nominal value or cost |
| Key tax step | Ask your CA about tax on any buy-back or transfer, and how share issues are valued | 83(b) election within 30 days of the share grant | Discuss a section 431 election with your adviser when shares are acquired subject to restrictions |
| Timing trap | Vesting applied after shares are allotted needs every founder's consent | Missing the 30-day 83(b) deadline cannot be fixed | Leaver articles must be in place before the shares are issued |
India#
There is no statutory "unvested share". Founder vesting is a contractual choice, made through reverse vesting in the founders' or shareholders' agreement. There is no minimum period set by law (InCorpX).
The mechanism. The company or remaining founders hold a call option or buy-back right over unvested shares, with transfer restrictions so the shares can't be sold in the meantime (CalcGuru). The price is commonly face value (LegalSuvidha).
Mirror it in the articles. A shareholders' agreement binds only its parties. Courts have generally enforced it where it is consistent with the articles, so put the transfer restrictions in both (Khurana & Khurana).
How a buy-back works in practice. A buy-back by the company itself is regulated under the Companies Act and has conditions. Transfers to the other founders, or to a trust for the ESOP pool, are often simpler. Your lawyer will choose the route.
United States#
Founders buy restricted stock at a tiny price, subject to the company's right to repurchase unvested shares at cost.
83(b) election. File within 30 days of receiving the shares. It means you are taxed on the tiny value now rather than on the value of each tranche as it vests. The IRS released a standard form, Form 15620, in November 2024 and opened online filing in 2025. The 30-day deadline has not changed, and a copy must still go to the company (Morrison Foerster; Snell & Wilmer).
Re-vesting. If shares are put back under vesting at a financing, another 83(b) election may be needed. Ask counsel each time.
United Kingdom#
Founders subscribe at nominal value. Vesting is delivered through leaver provisions that force departing founders to transfer some shares at nominal value or cost.
BVCA model documents. Most UK VCs start from these. The current versions provide that founders who are good leavers keep a proportion of shares according to a vesting schedule (Shoosmiths), and voluntary resignation is no longer automatically a bad-leaver event (Ashfords).
Tax. Shares acquired subject to leaver restrictions can be "restricted securities" for income tax. A joint election with the company, made promptly, usually avoids later charges. Ask your adviser.
Templates and scripts#
Founder vesting clause, plain-English version#
Use this as a starting brief for your lawyer, not as drafting.
Founder vesting. Each founder's shares vest over 48 months from [vesting commencement date], with 25% vesting on the first anniversary and the rest in equal monthly instalments. Unvested shares may be bought back by [the company / the other founders / the ESOP trust] at [face value / cost] if the founder stops providing services. A founder who is a good leaver keeps vested shares. A founder who is a bad leaver (defined as termination for cause or material breach) must sell vested shares at the lower of cost and fair value. On a change of control, 100% of unvested shares vest if the founder is terminated without cause or resigns for good reason within 12 months after closing.
What to check in an investor's term sheet#
| Term | Founder-friendly | Investor-friendly | Push for |
|---|---|---|---|
| Credit for time served | Full credit from start of full-time work | No credit; vesting restarts at closing | Credit for documented time |
| Unvested portion at closing | 25 to 50% | 75 to 100% | A portion matched to the time remaining to the next round |
| Acceleration | 100% double trigger, or partial single | None | 100% double trigger |
| Bad leaver definition | Cause and material breach only | Includes any resignation | Narrow |
| Vested shares on bad leaver | Kept | Bought at nominal value | Lower of cost and fair value at worst |
Scripts#
Proposing vesting to a co-founder who says "we trust each other":
"I trust you, and that's why I want this. Vesting protects whichever of us stays if life happens to the other: illness, a visa problem, a family move. Every investor will ask for it anyway. I'd rather we write it ourselves now, on fair terms, than have it imposed later."
Asking a professor to vest:
"Your stake reflects the role we've written down: about two days a month, scientific direction and investor credibility. We'd like it to vest over four years in the same way as everyone else's. If the university ever requires you to step back, you'd be treated as a good leaver and keep what you've earned."
Responding to a re-vesting request at seed:
"We understand you want us bound in for the period you're funding. We've been full-time for 18 months, documented in our grant reports. We'd propose crediting that time, re-vesting the remainder over three years, and 100% double-trigger acceleration."
Mistakes that cost teams the most#
No vesting at all. It leaves dead equity on the table and lets investors write the terms later.
Missing the US 83(b) deadline. It is unfixable and can mean large tax bills on paper gains.
Vesting tied to "employment" for a non-employee professor. The clause then fails, or triggers immediately.
Bad-leaver definitions so broad they cover resignation. This invites disputes and alienates founders.
No fair-value method. The valuation fight then happens at the worst possible moment.
Signing vesting after shares are allotted in India or the UK without the right consents.
Unequal vesting terms between founders without a reason. This breeds resentment.
Ignoring the cliff edge. A founder approaching month 11 who is clearly leaving is a known risk. Have the conversation early, and consider a negotiated partial vest rather than a fight.
Case note: BharatPe#
BharatPe's shareholders' agreement classified founder shares as restricted, subject to reverse vesting, with a bad-leaver trigger allowing clawback. When co-founder Ashneer Grover left in 2022, the company publicly moved to claw back his restricted shares under that agreement (Treelife; Treelife, bad leaver clause).
The dispute shows that Indian reverse-vesting and leaver clauses get used, and fought over, in high-profile exits. The precision of the bad-leaver definition, and whether the agreement and articles line up, become the whole argument.
Read next#
Noam Wasserman, The Founder's Dilemmas
Related playbooks#
2.11 Spinout equity norms
3.04 Business CEO
3.05 Splitting founder equity
5.01 ESOP pool sizing
5.04 Equity by level