What are the Various Time Horizons in a Vesting Agreement?

Maxim Atanassov
3 min readSep 5, 2024

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What are the Various Time Horizons in a Vesting Agreement?

In the dynamic world of startups, time is a currency, and in the realm of vesting agreements, it’s the foundation. Let’s dissect the various time horizons in vesting agreements: cliff, milestone, linear, accelerated, and more.

1. Cliff Vesting: The Crucial Onset

  • Cliff vesting is the startup’s litmus test for commitment. It’s a period, typically a year, during which no equity vests. If an employee leaves before the cliff, they walk away empty-handed. This initial phase is a safeguard, ensuring that key players are committed before they start earning equity. It’s like the first chapter of a novel, setting the scene for the commitment saga.

2. Milestone-Based Vesting: The Goal-Oriented Timeline

  • Milestone-based vesting ties equity to the achievement of specific company goals or project completions. It’s a dynamic, goal-oriented approach that aligns equity distribution with strategic achievements. Whether it’s launching a new product, hitting a revenue target, or expanding into a new market, milestone vesting aligns the employees’ incentives with the company’s key objectives.

3. Linear Vesting: The Steady Journey

  • Linear vesting is the marathon runner of equity distribution. Here, equity vests in a straight line, usually monthly or annually, over a predetermined period, often four years. It’s predictable and steady, rewarding longevity and consistent contribution. It’s like the heartbeat of the vesting agreement, a constant rhythm that marks the passage of time and contribution.

4. Accelerated Vesting: The Fast Forward Button

  • Accelerated vesting is like a plot twist in the vesting story. It allows for quicker vesting under certain circumstances, such as an acquisition or a change in control. This can come in the form of single-trigger acceleration (one event triggers acceleration) or double-trigger acceleration (two events are needed). It’s a clause that adds a layer of protection for employees in scenarios of rapid change.

5. Graded Vesting: The Gradual Ascent

  • Graded vesting is a hybrid, a blend of cliff and linear vesting. After the initial cliff, equity vests in increasing increments over time. This model is like a staircase, each step representing an increasing share of equity, incentivizing employees to continue contributing to the company’s growth over a longer period.

In Application:

  • In the tech world, a common scenario might involve a four-year linear vesting schedule with a one-year cliff. This means no equity vests in the first year, but after that, it vests linearly, often monthly, until the end of the fourth year.

In Conclusion

Time horizons in vesting agreements are not just temporal markers; they are strategic tools that shape a startup’s equity distribution journey. They reflect a nuanced understanding of commitment, performance, and change, playing a critical role in aligning employees’ interests with the company’s long-term goals. They are carefully crafted to balance the immediate needs with the long-term vision, ensuring that its key players remain motivated and aligned with its success as the company evolves.

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Maxim Atanassov

Serial entrepreneur, founder, investor, board member with a passion to support founders who are hell bent on defining the future.