Although this term does not directly relate to raising capital, it is an important financial term to consider nonetheless, and the investors will expect to know vesting schedules of the employees. A vesting schedule is imposed on employees who receive equity and determines when they can access that equity. This is useful because it means that if you give 5% of your company to a partner, that partner cannot just quit a couple of months down the line and keep the equity.
A typical vesting schedule takes four years and involves a one-year cliff. The “cliff” means that none of the employee’s shares vest for at least one year. After that year, typically 25% of the employee’s equity is released, and the rest vests on a monthly or quarterly basis. “Vesting” in simple terms means ownership. and are an incentive program for employees that gives them benefits when they have contractually fulfilled a specified term of employment. Each employee will vest, or own, a certain percentage of their account in the plan each year. An employee who is 100% vested in his or her account balance owns 100% of it and the employer cannot forfeit, or take it back, for any reason.
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