Equity Vesting for Co-Founders: Startup Guide

When deciding how much equity to share with your co-founder, it's essential to consider their contributions, responsibilities, and the value they bring to the business. It's not always necessary to share equal equity, as you can choose to grant equity based on each co-founder's role and input.

If you want to give your co-founder equity gradually, you can set up a vesting schedule. A vesting schedule allows equity to be earned over time, rather than being granted all at once. This can help align incentives, as both co-founders need to stay committed to the business in order to fully earn their equity.

Here's a step-by-step process to set up a vesting schedule:

1. Determine the total amount of equity to be granted:

First, decide how much equity you're willing to grant to your co-founder based on their role, responsibilities, and value they bring to the business. This should be a percentage of the total shares of the company.

2. Choose a vesting period:

A typical vesting period is 3 to 4 years, but it can be shorter or longer based on your agreement. The vesting period is the time it takes for the co-founder to fully earn their equity.

3. Set up a cliff period:

A cliff is a period (usually one year) during which the co-founder doesn't earn any equity. If the co-founder leaves the company before the cliff period ends, they won't receive any equity. This helps ensure that the co-founder is committed to the business and provides some protection for the company.

4. Determine the vesting schedule:

After the cliff period, the co-founder will begin to earn their equity on a regular basis, usually monthly or quarterly. Decide how the equity will be distributed over the vesting period. The most common approach is to divide the total equity by the number of months or quarters in the vesting period.

5. Include the vesting schedule in the co-founder agreement:

Include the vesting schedule in your co-founder agreement, specifying the total equity grant, vesting period, cliff period, and distribution schedule. Both parties should review and agree on these terms.

6. Regularly review and update the vesting schedule:

As the business evolves, you may need to revisit the vesting schedule and make adjustments as necessary. This can be done by mutual agreement between the co-founders.

By setting up a vesting schedule, you can ensure that your co-founder's equity is earned gradually and fairly, based on their ongoing commitment and contributions to the business. This approach can help align the interests of both co-founders and promote long-term success for the company.