Founders Should Get Credit for Time Served if Required to (Re)vest Stock in Connection With a Financing

At the time of a Series Seed or Series A financing (and sometimes in later rounds), investors typically require that the company’s founders agree to subject some or all of their shares to “vesting,” giving the company the right to repurchase any unvested shares if the founder is no longer working for the company. Vesting founders’ shares helps to protect the investors (and other stockholders) by ensuring the founders have a financial incentive to stay with the company and continue to contribute to its growth and success. 

While insisting on (re)vesting a portion of a founder's shares is reasonable in most circumstances, founders should still benefit from the work they've done to that point. The standard vesting schedule for stock or option grants made by early stage companies—four years with 25% of the shares vesting after one year (referred to as a “cliff”) and the remainder vesting monthly or quarterly over the remaining three years—is rarely appropriate for a founder that has spent months, or even years, building the company before the financing. At the very least, founders should receive some credit for time already served and vesting should start immediately (i.e. not be subject to a cliff) and often the overall vesting period should be reduced from four years to three or even two. Investors will often also agree to full or partial acceleration of vesting of the founder’s shares if (a) the company terminates the founder’s employment without “cause” (generally defined as bad acts by the founder), (b) the founder leaves the company in certain circumstances (ex. the Board tries to relocate the founder or materially reduces their pay) or (c) the company is acquired or the founder’s employment is terminated following an acquisition. 

Related to the issue of vesting is the question of whether under some circumstances the company should have the right to repurchase vested shares from founders who are no longer with the company. The only circumstance in which it is generally accepted that the company should have the right to repurchase vested shares is if the founder is fired for cause.