Vesting turns a promise of future stock into a right to exercise and potentially own shares. Employees usually receive options, while founders typically own their shares outright. section 4.2
A typical employee option grant works like this:
- The grant usually vests over four years with a one-year cliff. section 21.4.2
- Nothing vests during the first year; at the anniversary, one-quarter vests. section 21.4.2
- After the cliff, the remaining grant commonly vests at 1/36 per month. section 21.4.2
- Leaving the company usually ends future vesting, and vested options may have only a short exercise window, often 90 days. section 4.2
- Vesting is not exercise: exercise requires paying the strike price to turn vested options into shares. section 4.2
A practical check
An employee receiving 10,000 options should ask what percentage of the company that represents, when the options vest, when they expire, and what exercising them costs. section 21.4.2
