The Big Vesting Guide – Part 1: How founders gain and lose shares over time

A contribution by Simon Stepper. He is a lawyer at the Munich-based law firm Freshfields Bruckhaus Deringer and a lecturer at the Ludwig Maximilian University of Munich. He advises on all aspects of corporate law, particularly corporate law.

During financing rounds, founders are regularly confronted with the issue of vesting. This involves founding shareholders "earning" their shares in the startup over a certain period of time and potentially losing them again if they exit the startup early.

The economic purpose of vesting is to motivate the founders or founding team to remain with the startup and to commit to the company's success. It is intended to prevent founders from leaving the startup after a relatively short period of time while still retaining their shares. Especially in startups whose success depends significantly on the business idea, the commitment, and the skills of the founders, investors want to incentivize the founders not to leave the company at short notice. To this end, they regularly request the inclusion of a vesting clause in the term sheet for the financing round, which is then implemented in the investment agreement.