Vesting

Vesting refers to a mechanism in which shares or options are only fully acquired over a certain period of time. If a founder or employee leaves the company prematurely, the shares that have not yet vested revert to the company or the remaining shareholders. Vesting is intended to ensure that key people stay on board over the long term.

A typical structure comprises a vesting period of four years with a one-year cliff. The cliff means that no shares vest in the first year; only after the year has elapsed is a first tranche released, after which further vesting takes place monthly or quarterly. Investors such as in venture capital regularly insist on founder vesting as a precondition for financing.

Vesting arrangements are closely linked to the ESOP employee participation programme and are anchored in the term sheet and the shareholders' agreement. We advise on a fair structure as part of startup financing.