Typical vesting period for stock options
In a previous Founder Tip of the Week, I discussed what vesting is. In this Founder Tip of the Week, I will discuss some common vesting schemes. The norm for options granted to employees is that they vest ratably monthly over four years.
Among other matters, cliffs help companies avoid having to issue stock to optionees that do not work out and may be hostile to the company. The vesting for consultants varies depending on the engagement. A consultant engaged to perform services for 12 months would generally be granted an option that vests ratably monthly over 12 months.
Options granted to consultants sometimes have cliffs. As with employees, the norm for options granted to directors is that they vest ratably monthly over four years. However, because directors are often-times luminaries in their fields that are highly sought after and therefore have leverage, directors can often negotiate shorter vesting terms.
It is not uncommon for options granted to directors to vest ratably monthly over three years or even two years. Options granted to new directors as opposed to long-standing directors sometimes have cliffs.
As with employees, the norm for options granted to advisors is that they vest ratably monthly over four years. However, like directors, advisors sometimes have the leverage to negotiate shorter vesting terms, so the vesting term can be three years or even two years.
What You Need To Know About Vesting Stock - Wealthfront Knowledge
Also as with director options, advisor options will sometimes provide that vesting accelerates with respect to a portion or all of the shares upon a change of control of the company. Options granted to new advisors as opposed to long-standing advisors sometimes have cliffs.
The starting point for founders stock is that it generally vests ratably monthly over four years, like employee options. However, founders stock vesting schemes vary widely, particularly where one or more founders contributes valuable intellectual property to the company at incorporation of the company or has been working on the business of the company for a significant amount of time prior to incorporation.
Such founders will often have a portion of their shares vested up front. Founders stock is not generally subject to cliffs. However, when a company has more than one founder, and particularly when such founders do not have a history of working together, the stock of some or all of the founders may be made subject to a cliff.
As mentioned above, cliffs help companies avoid having stock end up in the hands of persons that do not work out and may be hostile to the company. The terms of founders stock will generally provide that vesting accelerates with respect to a portion or all of the shares upon a change of control of the company.
Advice on Advisor Option Grants | Cooley GO
Whatever vesting schemes founders settle upon, the vesting schemes should be reasonable, particularly if they plan to seek venture capital financing. The vesting terms I discussed above are baselines. For example, some companies use three-year or five-year vesting for employees and others across the board.
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There may also be regional variations as well. Finally, as I called out with respect to director and advisor vesting, some individuals have the leverage to negotiate shorter or otherwise more favorable vesting schemes. Unfortunately, there are a lot of misconceptions about unpaid interns.
What’s a typical vesting schedule for employee stock options? | FS Incubators Accelerators San Francisco Silicon Valley Bay Area China
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