[SaaS 筆記 42] Vesting and Cliffs

Vesting is the process of gaining full legal rights to something. People may refer to their shares or stock options vesting, or may say that a person is vesting or has fully vested.


​​In the majority of cases, vesting occurs incrementally over time, according to a vesting schedule. A person vests only while they work for the company. If the person quits or is terminated immediately, they get no equity, and if they stay for years, they’ll get most or all of it.

​​Vesting schedules can have a cliff designating a length of time that a person must work before they vest at all.

常見的是 4 years, 1 year cliff。表示一年內離職什麼都沒有,第 13 個月開始 25%,每月增加 1/48。

​CONTROVERSY​ Cliffs are an important topic. When they work well, cliffs are an effective and reasonably fair system to both employees and companies. But they can be abused and their complexity can lead to misunderstandings:

  • The intention of a cliff is to make sure new hires are committed to staying with the company for a significant period of time. However, the flip side of vesting with cliffs is that if an employee is leaving—quits or is laid off or fired—just short of their cliff, they may walk away with no stock ownership at all, sometimes through no fault of their own, as in the event of a family emergency or illness. In situations where companies fire or lay off employees just before a cliff, it can easily lead to hard feelings and even lawsuits (especially if the company is doing well enough that the stock is worth a lot of money).**
  • ​IMPORTANT​ As a manager or founder, if an employee is performing poorly or may have to be laid off, it’s both thoughtful and wise to let them know what’s going on well before their cliff.
  • ​TECHNICAL​ Founders often have vesting on their stock themselves. As entrepreneur Dan Shapiro explains, this is often for good reason.
  • ​IMPORTANT​ As an employee, if you’re leaving or considering leaving a company before your vesting cliff is met, consider waiting. Or, if your value to the company is high enough, you might negotiate to get some of your stock “vested up” early. Your manager may well agree that is is fair for someone who has added a lot of value to the company to own stock even if they leave earlier than expected, especially for something like a family emergency. These kinds of vesting accelerations are entirely discretionary, however, unless you negotiated for special acceleration in an employment agreement. Such special acceleration rights are typically reserved for executives who negotiate their employment offers heavily.
  • Acceleration when a company is sold (called change of control terms) is common for founders and not so common for employees. It’s worth understanding acceleration and triggers in case they show up in your option agreement, but these may not be something you can negotiate unless you are going to be in a key role.
  • Companies may impose additional restrictions on stock that is vested. For example, your shares are very likely subject to a right of first refusal, which means that you can’t sell the stock without offering it first to the company. And it can happen that companies reserve the right to repurchase vested shares in certain events.

建議給 co-founder 這樣:

  • A 5, or better yet, 6 year vesting schedule (not the traditional 4), with
  • A 1 year cliff starting 12 months after you close seed funding, or launch of MVP — whichever comes later.  (I.e., if you leave before those 12 months, you leave with 0 shares.  Zero).
  • No vesting at all for all the hard work you’ve already done prior to that cliff.  None.
  • With full acceleration / 100% vesting if terminated after an acquisition (so-called “double trigger”).

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