In startup equity, a vesting period is the length of time an employee, founder, or advisor must stay with the company before earning the right to exercise or fully own their stock options or restricted shares. A standard stock option plan does not give all the equity on day one; instead, ownership is earned gradually over time.

For venture-backed startups, vesting is a core part of cap table management and incentive design. It aligns long-term commitment with long-term ownership, so the people who help build the company are the ones who benefit most if it succeeds.

Why Vesting Periods Matter for Startups

Without vesting, a new hire or cofounder could leave after a few months and still keep a large chunk of the company’s equity. That locks up valuable ownership on the cap table and reduces the option pool that could otherwise be used to hire replacements or other critical team members.

Vesting periods protect both the company and the team that stays. If someone leaves early, their unvested equity typically returns to the option pool, giving the company room to recruit new talent without immediately renegotiating ownership with existing investors or founders.

Typical Startup Vesting Schedules

In most venture-backed startups, a “standard” employee vesting schedule looks like this:

  • Total vesting term: 4 years (sometimes 5 years for founders or executives)
  • Cliff: 1-year cliff (no vesting until the first anniversary of the start date)
  • Ongoing vesting: Monthly vesting after the 12-month cliff

Under a four-year schedule with a one-year cliff, an employee typically vests 25% of their total grant at the one-year mark, then vests the remaining 75% in equal monthly installments over the next 36 months. If they leave before the cliff, they usually walk away with no vested options.

How Vesting Works for Stock Options

A few key concepts help clarify how vesting applies to stock options:

  • No lump-sum stock on day one. Employees are granted a total number of options in their offer letter, but they don’t own all of that equity immediately. The grant is subject to the vesting schedule in the company’s equity plan and option agreement.
  • Options vest over time. Each month (after the cliff), a small portion of the grant vests. Once those options are vested, the employee has the right to exercise them, usually by paying the exercise price. That’s subject to the plan’s rules and any post-termination exercise window.
  • Vesting is a retention tool. The primary purpose of a vesting period is to retain employees and founders over multiple years. The longer someone stays, the more of their grant they earn. This encourages continuity in critical roles and helps startups avoid constant turnover in ownership.

Common Vesting Variations for Founders and Key Hires

While four-year vesting with a one-year cliff is the most common structure, there are variations startups sometimes use:

  • Five-year vesting. Some companies lengthen the vesting term for founders or executives to five years to emphasize longer-term commitment and better match the expected time to scale or exit.
  • Refresh grants and promotion grants. As employees grow in their roles, they may receive additional grants with new vesting schedules. This keeps high performers incentivized beyond their original four-year grant.
  • Double-trigger acceleration. In some cases, especially for executives, vested or unvested equity can accelerate if two conditions are met (for example, the company is acquired and the employee is terminated without cause). This needs careful legal and investor review.

Vesting, Cap Tables, and Option Pools

From a cap table perspective, vesting helps keep ownership in the hands of active contributors. It also makes future fundraising and due diligence easier, because investors can see:

  • How much equity is unvested and tied to retention
  • How much remains in the option pool for future hires
  • Whether any “dead equity” is sitting with people who are no longer involved

When vesting is implemented cleanly and consistently, your capitalization table is more attractive to investors and acquirers, and your option pool can be managed more strategically over time.

Vesting Periods Are Crucial for Equity Compensation

Stock options are very important to startups, allowing them to recruit the talent they need. And vesting periods are one of the most important building blocks of a startup option plan. They protect the company, reward long-term contributors, and help keep your cap table clean as you grow. You should work with your attorneys and equity advisors to make sure your equity plans, vesting schedules, and cap table all line up with your long-term goals.