Glossary
Vesting Period
A vesting period is the timeframe during which an employee, founder, or investor must remain with a company before gaining full ownership rights to stock options, restricted shares, or other equity incentives.
What Is a Vesting Period?
A vesting period is the timeframe during which an employee, founder, or investor must remain with a company before gaining full ownership rights to stock options, restricted shares, or other equity incentives.
Key Aspects of Vesting Periods
- Purpose: Encourages long-term commitment and retention.
- Typical Duration: Often 4 years with a 1-year cliff, meaning no equity vests in the first year, but after 12 months, a portion (e.g., 25%) becomes available, followed by monthly or quarterly vesting thereafter.
- Types of Vesting: ◦ Time-Based Vesting: Ownership accrues over time (e.g., monthly or yearly). ◦ Milestone-Based Vesting: Equity vests upon reaching specific goals (e.g., revenue targets, IPO, or acquisition).
Vesting ensures that equity incentives serve their intended purpose—aligning stakeholders' interests with the company’s long-term success.