By Alex Civetta and Garrett Galvin

Why “Vesting?”

Building a company from the ground up is a risky (but hopefully rewarding) endeavor for founders. In exchange for the founders’ efforts and devotion to the success of the company, the founders take a significant equity stake in the company, with the expectation that the value of these shares will grow substantially as the company grows.  However, where there are multiple founders involved, each founder will want to ensure that their co-founder(s) are incentivized to stay with the business and work hard to make it successful, rather than holding on to a large equity stake and relying on the other founders to put in the lion’s share of the work needed to grow the business.  To address this concern, the initial grant of shares to each founder is often made subject to “vesting,” which links a founder’s right to keep such shares (or some portion thereof) to their continued service with the company.