How Startup Equity Vesting Works
Vesting protects companies and founders by ensuring that equity earned corresponds to time served and value created. The industry standard schedule is a 4-year vesting schedule with a 1-year cliff.
Vesting Timeline Rules: - Months 0 to 11 (Before Cliff): 0% vested. - Month 12 (At Cliff): Exactly $\frac{12}{48} = 25\%$ of total granted shares vest instantly. - Months 13 to 48: $\frac{1}{48}\text{th}$ of total grant vests linearly at the end of each month ($2.083\%$ per month).
Vesting Mathematical Model
\[\text{Share Price } (P) = \frac{\text{Company Valuation}}{\text{Total Shares Outstanding}}\] \[\text{Vested Shares } (S_{vested}) = \begin{cases} 0 & \text{if } t < t_{cliff} \\ \min\left(S_{total}, S_{total} \times \frac{t}{T \times 12}\right) & \text{if } t \ge t_{cliff} \end{cases}\] \[\text{Vested Value (\$)} = S_{vested} \times P\] \[\text{Unvested Shares} = S_{total} - S_{vested}\]Vesting Progress Table (100,000 Share Grant Example)
| Milestone | Time Elapsed | Percent Vested | Vested Shares | Vested Value ($10M Val / 10M Shares) |
|---|---|---|---|---|
| Before Cliff | Month 6 | 0.0% | 0 | $0 |
| At Cliff | Month 12 | 25.0% | 25,000 | $25,000 |
| Mid-Point | Month 24 | 50.0% | 50,000 | $50,000 |
| Fully Vested | Month 48 | 100.0% | 100,000 | $100,000 |
Step-by-Step Guide to Calculating Vested Equity
- Enter Total Grant Shares: Input granted options or restricted stock units (RSUs).
- Enter Company Valuation: Input current preferred or 409A fair market valuation.
- Set Shares Outstanding: Input total company shares issued.
- Set Vesting & Cliff Duration: Default is 4 years duration with 12 months cliff.
- Set Months Elapsed: Input number of months worked since the official grant date.
Frequently Asked Questions
What is a 4-year vesting schedule with a 1-year cliff?
A standard 4-year vesting schedule with a 1-year cliff means no shares vest during the first 12 months. At month 12, exactly 25% of the total grant vests at once, followed by 1/48th vesting monthly for the remaining 36 months.
What happens if an employee leaves before the 1-year cliff?
If an employee leaves before reaching the 12-month cliff, zero shares vest, and all granted stock options return to the unallocated option pool.
How is the dollar value of vested equity calculated?
Vested Dollar Value = Vested Shares × Current Share Price, where Share Price = Company Valuation ÷ Total Company Shares Outstanding.
What is acceleration of vesting?
Acceleration allows unvested shares to vest immediately upon specific events, such as acquisition (Single-Trigger) or acquisition followed by termination (Double-Trigger).
Do founders also have vesting schedules?
Yes. Venture capital investors require co-founders to submit to 4-year reverse vesting schedules to ensure long-term alignment and protect company continuity.
Is my equity data stored securely?
Yes. All computations execute locally in your client web browser with zero server data storage.