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When you’re starting a company with co-founders, it’s easy to focus on the vision, the product, or that first pitch deck. But before you split equity and jump into execution, there’s a legal document you shouldn’t skip: the founder vesting agreement.
This agreement protects your team, cap table, and company’s future.
👉 Book a free call with our legal team to get your vesting agreement in place.
A founder vesting agreement is a legal contract that defines how and when each founder earns their shares in the company. Instead of giving out equity upfront, the agreement sets a schedule—called a vesting schedule—that allows founders to "earn" their equity over time.
It’s not just a piece of legal paperwork. It’s a strategic safeguard that:
Think of it as a prenup for your startup—one that ensures everyone is in it for the long haul.
Without a vesting agreement, you’re gambling with your startup’s ownership. If a co-founder leaves early but keeps all their equity, the remaining team is left carrying the weight without recourse. That situation can create resentment, legal issues, and a messy cap table that repels investors.
Startups evolve fast. A founder might change priorities, move countries, or shift career paths. Another may stop contributing or burn out. Without vesting in place, they could walk away with a significant portion of equity—creating long-term problems for the startup.
A founder vesting agreement helps you:
💡 Scenario:
Imagine you and your two co-founders each take 33% of the equity. Six months in, one of them decides they’re no longer aligned with the mission and walks away. Without a vesting agreement, they keep their 33%, leaving the rest of the team to build the company with a major portion of equity already locked up.
Vesting prevents this. It’s a signal that equity is earned—not gifted.
It also fosters healthy dynamics. When everyone knows equity is tied to long-term contribution, it levels the playing field and avoids resentment. It’s about fairness and accountability.
In a landscape where 80–90% of startups fail within the first seven years, founder conflict is one of the most common causes. And often, it stems from unclear expectations around equity.
A solid vesting agreement adds predictability and protection. Here’s how it helps:
If a founder leaves before their vesting is complete, they forfeit part (or all) of their unvested shares. This ensures only committed contributors retain ownership.
In most agreements, unvested shares are returned to the company and can later be reallocated to a new team member or advisor. This keeps the cap table clean and reflects the reality of who’s doing the work.
A clear agreement helps prevent misunderstandings about who owns what and why. It creates structure around commitment and contributions. If disagreements arise later, the agreement serves as a reference point and reduces the need for legal battles.
When equity is earned over time, founders are more likely to stay aligned and motivated—especially during tough periods. It’s a powerful incentive to stay in the game. It also creates a shared vision of success that extends beyond the short term.
A founder vesting agreement isn’t one-size-fits-all, but these clauses are usually essential:
Most agreements set a 4-year vesting period with a 1-year cliff. That means no equity is vested in the first year. After that, equity typically vests monthly or quarterly.
This structure is simple but effective: the cliff discourages early exits, and the regular vesting schedule rewards consistency.
The agreement should clarify what happens if a founder leaves—both with cause and without cause. For example:
Depending on the cause, the consequences for equity can differ. Setting these expectations early prevents drama later.
To protect the company’s ownership structure, the agreement should include clauses like:
These are critical if you're expecting future funding or acquisition discussions.
Some founders opt for milestone-based vesting tied to hitting product, revenue, or fundraising goals. For example, 10% equity vests when the company launches its MVP, and another 10% when $500K in revenue is reached.
While this structure aligns equity with outcomes, it can be harder to track and enforce. Most early-stage startups prefer time-based vesting because it's simpler and predictable.
Founders often overlook this, but investors almost never do.
When you start talking to angels or VCs, they’ll want to know:
A founder vesting agreement signals that your company has:
Investors want to see maturity and foresight. A good idea with a weak team won’t get funded. A solid vesting agreement shows you’ve taken the necessary steps to build a team that’s built to last.
Startup equity is one of your most valuable assets. Don’t leave it to chance.
A founder vesting agreement doesn’t just protect your company—it protects your relationship with your co-founders, your future ability to fundraise, and your peace of mind.
Book a free call with our legal team to get your vesting agreement in place.
What’s the difference between a founder vesting agreement and a shareholders’ agreement?
A founder vesting agreement focuses specifically on how founders earn their equity over time. A shareholders’ agreement covers broader rights and obligations of all shareholders, including voting rights, share transfers, and more.
What is a cliff in vesting?
A cliff is the minimum time a founder must stay before earning any shares. A 1-year cliff is common—if the founder leaves before the year is up, they get nothing.
Can vesting be tied to milestones instead of time?
Yes. Some agreements use milestone-based vesting, but it requires very clear terms and is more complex. Time-based vesting is simpler and more common.
Can Lazo help draft a founder vesting agreement?
Yes. Our legal experts help founders set up vesting agreements that protect your startup from day one.
