Vesting

Vesting is a rule under which shares or options are earned only over time. Anyone who leaves earlier receives only the portion already earned. This encourages founders and employees to stay with the company for the longer term. In venture capital a four-year period with an initial twelve-month cliff and then monthly or quarterly vesting is market standard. In buyout structures the period follows the fund's holding period.

Besides the length, three points are negotiated above all. First, credit for work done before the financing round, since founders have already contributed substantially. Second, leaver provisions, distinguishing departure for good cause from departure by agreement and setting the buy-back price at market value or at the lower acquisition cost accordingly. Third, accelerated vesting on an exit, either immediately or only where the person concerned has to leave after the sale. For shares already issued, vesting in Germany is often implemented through contractual retransfer or redemption rights. Leaving early can therefore require the holder to give shares back. For buyers the vesting status of key personnel is a review point in its own right.