Founder Vesting Scenario Modeler

Understand vesting schedules, cliffs, and acceleration — see exactly what happens when founders leave early

🎯 What This Tool Does

This interactive modeler shows you exactly how founder vesting works and helps you understand why VCs require it. Model different departure scenarios, compare cliff vs no-cliff structures, and see the impact of acceleration on acquisition.

Configure Your Vesting Schedule

Acceleration on Acquisition

Common Vesting Scenarios - Why VCs Require Vesting

🚨 The Problem Vesting Solves: "The Departed Co-Founder"

Without vesting, a co-founder can:

  • Get 50% of the company on day one
  • Leave after 6 months
  • Keep the entire 50% forever
  • Remaining founders work for years to build value for someone who left

Result: Massive dilution, cap table mess, investors won't fund you.

Scenario 1: Co-Founder Leaves at 6 Months (No Vesting)

Setup

  • Two co-founders: Alice (CEO) and Bob (CTO)
  • Each gets 50% of 10,000,000 shares = 5,000,000 shares each
  • No vesting (granted upfront)
  • Bob leaves after 6 months to take a FAANG job

Result

Bob's Ownership After Leaving:
5,000,000 shares (50%)

Alice has to:

  • Work for 3 more years to build the company
  • Raise $2M Series A (dilutes to 35% each)
  • Bob gets 35% of $10M acquisition ($3.5M) for 6 months of work
  • Alice gets 35% ($3.5M) for 4 years of work
Why This Kills Fundraising:

VCs see Bob's 50% and immediately pass. They don't want to invest in a company where half the equity is controlled by someone who left years ago and contributed almost nothing.

Scenario 2: Same Situation WITH Standard Vesting

Setup

  • Two co-founders: Alice and Bob
  • Each gets 5,000,000 shares
  • 4-year vesting, 1-year cliff
  • Bob leaves after 6 months

Result

Bob's Vested Shares After Leaving:
0 shares (0%)

Why: Bob left before the 1-year cliff. He gets nothing.

Bob's unvested shares: Returned to the company (can be re-issued to new hires, or kept by Alice)

✅ Fair Result:

Alice keeps building. Bob gets nothing for 6 months of work (fair, since company had near-zero value at that stage). Alice can recruit a new CTO and issue equity without massive dilution.

Scenario 3: Founder Leaves After 2 Years (Standard Vesting)

Setup

  • 4-year vesting, 1-year cliff, monthly vesting thereafter
  • 10,000,000 shares
  • Founder leaves after 24 months

Calculation

At 12 months (cliff): 25% vests = 2,500,000 shares

Months 13-24: 12 months × (10M / 48 months) = 2,500,000 shares

Total vested:

5,000,000 shares (50%)

Unvested shares forfeited: 5,000,000 shares

✅ Fair Result:

Founder worked for 2 years (50% of vesting period), gets 50% of equity. Remaining 50% returns to company for new hires or remaining founders.

Scenario 4: Acquisition with Single-Trigger Acceleration

Setup

  • Founder has 10,000,000 shares, 4-year vesting
  • After 2 years: 5,000,000 vested, 5,000,000 unvested
  • Company acquired for $20M at month 24
  • Single-trigger acceleration (100% vests on acquisition)

Result

Shares vested at acquisition:
10,000,000 shares (100%)

Founder payout: $20M × 100% = $20M (before dilution)

Scenario 5: Acquisition with Double-Trigger Acceleration

Setup

  • Same as Scenario 4, but double-trigger acceleration
  • Trigger 1: Acquisition ✅
  • Trigger 2: Founder must be terminated without cause OR resign for good reason
  • Acquirer keeps founder employed

Result

If founder stays employed:
5,000,000 vested (50%)

Remaining 5M continues vesting over 2 years at acquirer

If founder is terminated without cause 6 months post-acquisition:
10,000,000 vested (100%)

Double-trigger fires: all unvested shares accelerate

✅ Why Double-Trigger is Standard:
  • Protects founders: Can't be fired and lose unvested equity
  • Protects acquirer: Founder can't trigger acceleration and quit immediately
  • Aligns incentives: Founder has reason to stay and help integration

Cliff vs No Cliff: Impact on Early Departures

Departure Time With 1-Year Cliff Without Cliff
3 months 0% (before cliff) 6.25% (3/48 months)
6 months 0% (before cliff) 12.5% (6/48 months)
9 months 0% (before cliff) 18.75% (9/48 months)
12 months 25% (cliff hits) 25% (12/48 months)
24 months 50% 50%
🎯 Key Takeaway: Cliff Prevents "6-Month Tourists"

The 1-year cliff ensures that if a co-founder leaves in the first year (when the company has near-zero value and they've contributed little), they get zero equity. This is fair and prevents cap table disasters.

How Founder Vesting Works - Complete Guide

What is Vesting?

Vesting is the process by which a founder earns their equity over time, rather than receiving it all upfront.

🔑 Key Concept

Even though founders are granted shares on day one (e.g., 5 million shares), those shares are subject to vesting. If the founder leaves before fully vesting, they forfeit the unvested portion.

Standard Vesting Terms

Example: 4-Year Vesting with 1-Year Cliff

Granted shares: 4,800,000

Vesting schedule:

  • Month 0-11: 0 shares vested (still in cliff period)
  • Month 12 (cliff): 1,200,000 shares vest (25%)
  • Months 13-48: 100,000 shares vest per month (4.8M ÷ 48 = 100K/month)
  • Month 48: 100% vested (4,800,000 shares)

Why VCs Require Vesting

⚠️ Without Vesting:
  • Co-founder can leave after 3 months with 50% of the company
  • Remaining founders must work for years while early leaver gets huge payout
  • Cap table is "dead weight" - investor won't fund
  • Impossible to recruit replacement without massive dilution
✅ With Vesting:
  • Early leavers get equity proportional to time contributed
  • Unvested shares return to company for new hires
  • Investors see committed, long-term team
  • Fair alignment between contribution and ownership

Acceleration on Acquisition

Single-Trigger Acceleration

Trigger: Acquisition alone causes unvested shares to vest

Example: Company acquired at month 24; all unvested shares immediately vest

🚨 Problem with Single-Trigger:
  • Founder vests 100% on acquisition
  • Founder immediately quits (no incentive to stay)
  • Acquirer loses key talent needed for integration
  • Result: Most acquirers refuse single-trigger deals

Double-Trigger Acceleration (Standard)

Triggers: Both of the following must occur:

  1. Acquisition (change of control)
  2. Founder is terminated without cause OR resigns for good reason within 12-18 months post-acquisition
✅ Why Double-Trigger is Better:
  • Protects founder: If acquirer fires you post-acquisition, you don't lose unvested equity
  • Protects acquirer: Founder can't trigger acceleration by quitting; they must be terminated or have "good reason" to resign
  • Aligns incentives: Both parties want founder to stay through transition

"Good Reason" for Resignation (Typical Definition)

Reverse Vesting vs Forward Vesting

Forward Vesting (Less Common for Founders)

Reverse Vesting (Standard for Founders)

💡 Why Reverse Vesting for Founders?

Founders get shares on day one (for tax purposes: 83(b) election), but company can repurchase unvested shares at nominal price if founder leaves. This gives founders actual stock ownership from the start (important for founder psychology and tax treatment) while still protecting the company.

Common Vesting Variations

Vesting Structure When Used
4-year, 1-year cliff, monthly Standard for founders and early employees
4-year, no cliff, monthly Founder-friendly variant (rare, VCs usually require cliff)
3-year, 1-year cliff, monthly Later-stage employees (company already de-risked)
4-year, 1-year cliff, quarterly Less common; creates "lumpy" vesting
5-year, 1-year cliff, monthly Advisors, part-time contributors

83(b) Election - Critical for Founders

🚨 CRITICAL: File 83(b) Within 30 Days of Grant

If you receive restricted stock (shares subject to vesting), you MUST file an 83(b) election with the IRS within 30 days of grant. If you miss this deadline, you'll owe taxes on each vesting event.

What is an 83(b) Election?

Example: 83(b) Impact

Without 83(b) Election

Day 1: Granted 1M shares, FMV $0.001/share ($1,000 total value)

Month 12 (cliff): 250K shares vest, FMV now $1/share

  • Ordinary income: 250K × $1 = $250,000
  • Tax owed (37% bracket): $92,500
  • You haven't sold anything - but you owe $92.5K in cash

With 83(b) Election (Filed Within 30 Days of Grant)

Day 1: File 83(b), pay tax on $1,000 FMV

  • Ordinary income: $1,000
  • Tax owed (37% bracket): $370

Month 12: Shares vest at $1/share FMV

  • Tax owed: $0 (already taxed at grant)

Later: Sell 1M shares for $10/share ($10M)

  • Capital gains tax (20%): $10M × 20% = $2M
  • Total tax: $370 (grant) + $2M (sale) = $2,000,370

Savings: $92,500 - $370 = $92,130 saved (and you didn't have to pay $92.5K out of pocket when you had no cash)

Key Takeaways for Founders

✅ Do This:
  • Accept standard 4-year vesting with 1-year cliff - VCs require it, and it's fair
  • File 83(b) within 30 days - set a calendar reminder, this is critical
  • Negotiate double-trigger acceleration - protects you if acquired
  • Get vesting terms in writing - equity grant agreement or stockholders' agreement
  • Consider early exercise - if allowed, exercise unvested options early to start capital gains clock
❌ Don't Do This:
  • Don't fight vesting - no serious investor will fund you without it
  • Don't grant shares without vesting to co-founders - you'll regret it if they leave early
  • Don't miss the 83(b) deadline - it's unforgivable and will cost you hundreds of thousands
  • Don't agree to single-trigger acceleration - acquirer will renegotiate or walk away