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You've incorporated your company, split the equity with your co-founders, and started building. Everything feels right. But six months in, one founder checks out. They stop showing up. They take another job. And they still own a third of your company.
This scenario plays out constantly. At Fellow, we see it multiple times a quarter. The fix is almost always the same: a vesting schedule should have been in place from day one.
This guide covers everything you need to know about founder's stock, vesting schedules, and what actually happens when a founder departs.
What is founder's stock?
Founder's stock is the equity issued to founders at or near incorporation. It's typically purchased for a nominal amount, often $0.0001 per share, or in exchange for assigning intellectual property to the company.
The key word here is "purchased." Unlike stock options, which give someone the right to buy shares later at a set price, founder's stock is actual ownership from day one.
But ownership and earned equity are different things. That's where vesting comes in.
Why vesting matters (even between co-founders)
A vesting schedule gives the company the right to repurchase unvested shares if a founder leaves before the schedule is complete. Without one, a departing founder walks away with their full allocation, regardless of how much or how little they contributed.
Here's the standard setup:
- 4-year vesting period
- 1-year cliff (no shares vest until the first anniversary)
- Monthly or quarterly vesting after the cliff
This means if a founder leaves after six months, the company can buy back 100% of their shares at cost. If they leave after two years, they keep 50%, and the company repurchases the rest.
Investors expect this. If you show up to a fundraise without vesting on your founder shares, it raises immediate concerns. It signals that the founding team hasn't thought about what happens if things go sideways.
Retroactive vesting credit
Most founders don't incorporate on day one. They spend months, sometimes years, building before the company formally exists. Retroactive vesting credit accounts for that.
If you worked on the company for 12 months before incorporation, you can negotiate 12 months of vesting credit. That means on day one of the formal vesting schedule, you're already 25% vested (assuming a 4-year schedule). The cliff still applies, but your pre-incorporation work counts.
What happens when a founder departs
When a founder leaves, three things matter:
- How much of their stock has vested
- Whether the company has the right to repurchase unvested shares
- What triggers, if any, are built into the agreement
Vested shares belong to the departing founder. Unvested shares can typically be repurchased at the lower of cost or fair market value. The company gets those shares back, and they return to the pool.
If there's no vesting schedule, there's no repurchase right. The departed founder keeps everything.
Acceleration clauses: single vs. double trigger
Acceleration determines what happens to unvested shares in specific events, like a company sale or termination.
Single-trigger acceleration vests all shares upon one event: usually the sale of the company. It rewards founders immediately at exit, but it can create problems. Acquirers see fully vested founders as a retention risk, and investors may push back because it creates unnecessary dilution at close.
Double-trigger acceleration requires two events: the company is sold AND the founder is terminated without cause (or resigns for good reason) within a set window, typically 9 to 18 months after closing. This is the standard approach. It protects founders while keeping everyone incentivized through the transition.
Additional protections worth knowing
Beyond vesting, founder's stock agreements often include:
- Right of first refusal: the company gets the first opportunity to buy shares before a founder sells to a third party.
- Co-sale (tag-along) rights: other stakeholders can participate proportionally in any sale.
- Lock-up agreements: commonly used around an IPO, preventing founders from selling for a set period (often 180 days).
- Super-voting rights: a separate share class giving founders additional voting power, protecting control through dilution.
The bottom line
Founder's stock without vesting is one of the most common and most avoidable mistakes in startup law. The setup takes a few hours. The fix, when someone leaves without one, takes months and costs significantly more.
At Fellow, we build vesting into every founder's stock agreement from the start. It's not about distrust. It's about building a company that can survive its own growing pains.
If you haven't set up vesting yet, reach out. We'll get it done.
