So What Is Vesting and Reverse Vesting?

 Hello viewers, welcome to Info Thirst. Today, we are going to discuss vesting of shares . Before we get into the topic we would like you to Follow us by clicking the follow button. Now that you have done that...So let's dive into it…

Meaning of 'Vesting’ is the transfer of possession here in this case, the Employee qualifies to gain a company's share under ESOP (Employee Stock Ownership Plan). Vesting period is the period post which an Employee can practice the option granted to him under ESOP. 

So what is 'Reverse Vesting'?

It applies to Founder's shares ,when they actually hold their shares upfront, however, if they leave the organisation without completing say 4 or 5 years, the company would have the right to repurchase pro-rata shares at the face value.

Investor Agreements put reverse vesting clauses on Founders so as to restrict their access to their shares if they stop contributing towards the growth of their company.

While negotiating your term sheet with an Investor, depending on the stage of your company, if it’s early stage, reverse vesting may be of 4 years. However, if you’ve spent 3 years already building the company, you can negotiate a reverse vesting of 1 or 2 years saying you’ve been running it and earning your right to shareholding even before the investor came in. 

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