Founder equity is commonly subject to a vesting schedule, meaning shares are earned over time rather than owned outright from day one. The arrangement protects the founders from each other more than it protects investors.
The problem it solves is departure, not misbehaviour
Consider two founders splitting ownership evenly, one of whom leaves after several months for entirely understandable reasons.
Without vesting, that person retains half the company while the other spends years building it, and every future hire and investor is diluted around a stake that is no longer being earned.
Vesting converts ownership into something accrued through continued contribution, which reflects what the equity was intended to represent.
Cliffs and schedules shape the incentive
A typical structure vests over several years with an initial cliff period, so a founder who leaves very early receives nothing and one who stays accrues steadily thereafter.
The cliff addresses the earliest and most disruptive departures. The longer schedule keeps the remaining ownership tied to remaining involvement.
Terms vary considerably between companies and jurisdictions, and the details of how shares are issued and taxed differ enough that founders generally take professional advice before signing.
Investors treat it as a condition rather than a preference
An investor is funding a team as much as an idea, and a founder who can leave with a full stake makes that team less binding.
Where vesting has not been agreed beforehand, it is usually imposed at the first priced round, sometimes with time already served credited and sometimes not.
Agreeing it early is generally easier, because the conversation happens between founders who all face the same terms rather than under the pressure of a financing.
Acceleration terms decide what happens at an exit
If a company is acquired before shares are fully vested, the unvested portion has to be dealt with, and the treatment is negotiated in advance rather than at the moment of sale.
Some agreements accelerate vesting on a change of control, others accelerate only if the founder is also terminated after the acquisition.
Buyers care because they are often purchasing the team's continued involvement, and full acceleration can leave them with an acquired company whose key people are free to walk on completion.
A departed founder still sits on the cap table
Someone who leaves with vested shares becomes a passive shareholder carrying voting and information rights while contributing nothing further to the work.
Later investors examine such positions closely, because a meaningful stake held outside the company is ownership that cannot be used to motivate anyone still building it.
Some founder agreements include buy-back rights for that reason, and they are agreed at formation precisely because nobody negotiates them comfortably once a departure is underway.