Equity Vesting for Startups: What founders and employees need to know

2 minute watch | April.06.2026

Nick Feldman and Cody Peterson, partners in Orrick's Technology Companies Group, demystify equity vesting for startup founders and employees. Learn:

What vesting means for both stock and options – and how it ties to time spent working
The market standard four-year vesting schedule with a one-year cliff
How the cliff ensures employee commitment and protects the company if someone leaves early
Vesting schedules for advisors and consultants – and where they different from employees

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Transcript (+)

Cody: Let's talk about vesting. What does that word even mean? What are we talking about when we say vesting?

Nick: It's really important when it comes to startup equities. Vesting means for stock, the right for the company to repurchase shares, or for options, the rate for the option holder to exercise the option and purchase shares.

Vesting can be tied to a number of things, but most commonly it is tied to time spent working and providing services to the company. Typically for employees, the market standard is four years with a one-year cliff. Cliff meaning that you've got 48 monthly increments, but at the first year, the first 12 of 48 -- the first 25% -- will vest. The reason why a cliff is common is to ensure the employee's commitment to the company, and that if they show up for three months and it's not the right fit, or their life circumstances change and they need to move on, that they are not retaining equity, that they didn't really “earn.”

Cody: It makes a lot of sense after they hit that one-year cliff, then they're investing on that 148 per month after that, right? If they go two years, then they've earned half their equity. And if they leave at that point, the other half is going back to the company one way or another.

Nick: Exactly right. And we've been talking a lot about employee equity, but equity can also be issued to consultants and advisors as well. Do you typically see the same vesting schedule or a different vesting schedules?

Cody: Yeah, good question. It depends on the role. I think the key difference is often advisors are on a shorter schedule, usually a two-year vesting schedule, sometimes with the cliff but often without. And the argument there is usually an advisor for a startup is there for a limited period of time and oftentimes there is an argument for a singer trigger acceleration or change of control for an advisor because again, they are not someone who would be expected to go along with the company. They were providing an outside advisory role and note somebody that would be a key team member going forward?