The Importance of Vesting Shares

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Vesting shares means taking shares granted to an employee and having them earned over time.

A typical vesting schedule is four years with a one-year cliff.

This means the employee granted shares will not have ownership of the shares for the first year.

At the end of the first year, the employee now owns 25% of the shares granted.

After that, the employee earns another 25% each year, and after four years from the start, the employee owns 100% of the shares granted.

It's important to apply vesting to shares to incentivize the employee to stay long enough to accomplish the work at hand.

Co-founders without vesting can leave at any time and take their shares with them.

Their equity is no longer working for the company.

Investors often unvest founders' shares and require a vesting schedule to earn them back.

This incentivizes the founder to stay with the company.

If a founder leaves the company early, then there's equity to compensate those who take their place.

Consider applying vesting to the founders in startups you fund.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let's go startup something today.

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