Founders vesting: what is it, why does it protect everyone, and how to structure it correctly?

Founder vesting is one of the most important legal mechanisms in the startup world, yet also one of the most frequently overlooked in the early stages in Latin America. Its absence is often not perceived as a problem until a co-founder leaves the project and retains their entire stake without having contributed to its long-term development.

What is vesting?

It is a contractual mechanism—usually included in the shareholders' agreement—by which a founder's stake in the company is gradually consolidated over time or based on the achievement of milestones. Before this consolidation occurs, the stake is subject to repurchase if the founder leaves the project.

Why does it protect everyone?

• For the company: it prevents a founder who leaves in the early stages from retaining equity without having contributed to the long term.

• To co-founders: ensure that your equity ultimately reflects your actual contribution

• To the founder himself: he assures that his consolidated share is inalienable and representative of his work

• To investors: funds almost invariably require founders to have vested experience before investing

The absence of vesting is not a 'benefit' for founders: it's a risk for everyone. A co-founder who leaves after a year with 33% can paralyze the company or simply take the fruits of others' labor.

The most common scheme: 4 years with a 12-month cliff

• Total period: 4 years

• Cliff: 12 months. Nothing is consolidated if the founder leaves before the year is up.

• Monthly vesting: from month 13 onwards, approximately 1/48 of the total participation per month.

  
  

Good leaver vs. bad leaver

Good leaver: departure for justifiable reasons (illness, death, mutual agreement). May have more favorable buyback conditions.

Bad leaver: termination due to breach of contract, unfair competition, or unilateral withdrawal. May include a buyback option at nominal price.

Acceleration in M&A events

In the event of a sale of the company or a change of control, it can be established that the founder's stake is fully or partially consolidated in advance (single or double trigger acceleration).

The ideal time to implement vesting is before anyone has a reason not to sign it: during the incorporation stage, when everyone is motivated and aligned. With conflicts of interest already in place, negotiation becomes exponentially more difficult.