Meaning
Time release mechanisms dictate when founders and employees earn full ownership of their issued shares. Implementing equity vesting schedules ensures that team members must remain with the company for a minimum period to receive their equity. This structure protects the startup from people who leave early with large ownership stakes.
Cliff Period
A typical arrangement requires a worker to complete a full year of service before any shares are earned. If the person leaves before this milestone, they receive zero shares. This safeguard allows the firm to evaluate the fit of a new hire before giving up equity.
Monthly Accrual
After the initial milestone, shares are distributed on a regular basis over the remaining term of the agreement. This steady distribution continues for three to four years until the worker earns the full amount. This ongoing incentive keeps the team focused on long term goals.
Acceleration Events
Certain conditions allow the vesting of shares to speed up, such as a company buyout or change in control. Single trigger acceleration speeds up vesting upon the sale of the business, while double trigger requires both the sale and the termination of the employee. This protection helps retain key executives during a transition, ensuring they are motivated to complete the sale even if their jobs are at risk.