Aligning Commitment and Ownership

When investors join your startup, they’re not only buying into your idea, but into you; the team that’s supposed to make it happen. That’s why one of the most discussed (and negotiated) parts of any term sheet is founder vesting.

What is Founder Vesting?

Founder vesting defines how and when founders actually “earn” their shares over time. Even though founders typically hold their full allocation of shares from the start, the vesting mechanism ensures that ownership is tied to ongoing contribution and commitment.

Under a typical setup, all founder shares are considered unvested at signing and are subject to reverse vesting. As the founders continue working in the company, their shares vest gradually. If someone leaves early, the company or other shareholders may buy back the unvested portion.

If a founder leaves early, whether voluntarily or not, part of their shares may be forfeited or repurchased. This protects both the company and the remaining team from having “dead equity” in the cap table.

Why It Matters

From an investor’s perspective, vesting keeps the founding team motivated and aligned with the company’s long-term success.

From a founder’s perspective, it also keeps the cap table clean and fair, everyone earns their equity by staying engaged and building value.

In short, vesting is not about mistrust, it’s about protecting the mission, ensuring that equity belongs to those still putting in the work.

Typical Terms

While details vary by deal, term sheets often follow a similar pattern:

All founder shares start as unvested at the signing of the shareholders’ agreement.

Vesting period: generally four years.

Cliff: 12 months, at which point 25% of the shares vest.

Monthly vesting after the cliff, with fractions rounded and any remainder vesting at the end.

Workload adjustments: if a founder reduces their workload significantly compared to the level at signing, the vesting period may be extended proportionally by the board.

No transfers of unvested shares without board approval, except where drag-along or call options apply.

Full acceleration of unvested shares in a sale or IPO. Note that double-trigger structure also exists; more on that below.

Acceleration in Exit Events: Single Trigger vs Double Trigger

Full acceleration of unvested shares in a sale or IPO is one of several ways to handle vesting when the company is sold. Most mature startup agreements prefer more nuanced triggers. The goal is to stay fair to founders while protecting the buyer and the company.

Single-trigger acceleration

This means that unvested shares accelerate as soon as there is a change of control, for example a sale or IPO. Nothing else needs to happen. The founder does not need to be terminated or demoted.

Why founders like it: it rewards the team for building the company to an exit.

Why investors and buyers dislike it: it can leave key people fully vested and free to walk away the day after the acquisition, which reduces deal stability.

Double-trigger acceleration

This requires two events:

• a change of control, and

• the founder is either terminated without cause or their role is materially changed within a defined period after the sale.

If both conditions happen, some or all of the remaining unvested shares accelerate.

Why investors prefer it: it keeps founders engaged through the transition period and protects the buyer.

Why founders still benefit: they are protected from being pushed out immediately after the sale without receiving the value of their remaining vesting.

Many deals now use partial double-trigger acceleration to keep things balanced. Instead of accelerating all remaining unvested shares when a founder is pushed out after a sale, only part of those shares accelerate or the acceleration is capped. This gives the founder protection if they are removed after the exit, while avoiding a situation where someone becomes fully vested on day one and has no reason to stay. It also makes the company more attractive to buyers, since the core team remains tied in during the transition.

Good Leaver vs. Bad Leaver

This distinction determines what happens if a founder leaves before fully vesting.

A bad leaver is a founder who is terminated for serious reasons, including cause under Swiss employment law (Art. 337 CO) or misconduct comparable to what triggers forfeiture under Art. 340c CO. In these cases, the company, or other shareholders, can repurchase all or part of the founder’s shares, including vested ones, at nominal value.

A good leaver is anyone whose departure does not fall under bad-leaver criteria. For good leavers, unvested shares may be repurchased at nominal value, while vested shares, if the parties have agreed to such a mechanism, are bought at fair market value.

There is also a safeguard often included: if the founder continues to work with the company in another role within a short period, no leaver event is triggered.

From a Founder’s Point of View

It’s tempting to see vesting as an investor-imposed constraint, but founders should treat it as a safety net too. It protects against future disputes and ensures fairness among co-founders, especially when the journey spans several intense years.

A well-structured vesting plan also helps when new investors come in. It signals that the team is aligned and the company’s equity is dynamic, not stuck with inactive shareholders.

From an Investor’s Point of View

Investors view vesting as a standard governance tool. They want assurance that the core team stays on board and that equity reflects ongoing contribution. Most investors expect vesting clauses and will insist on them before closing.

Key Takeaway

Founder vesting balances commitment with fairness. It ensures that everyone who builds the company owns the company, and that ownership reflects long-term contribution, not just early involvement.

Vesting is typically set out first in the term sheet and later detailed in the shareholders’ agreement. While the mechanics may vary, the goal is always the same: to align people, purpose, and ownership.

If you’re setting up vesting or preparing for a round, Alfred can help you get it right. Reach out if you want a quick review or need clarity before you sign.