Introduction

Founder vesting is one ofthe least debated and most consequential clauses in a startup term sheet. Itsits quietly in the shareholders agreement and activates at the worst possiblemoment: when a co founder leaves, whether by choice or not. The differencebetween well drafted and poorly drafted vesting and leaver clauses can be thedifference between walking away with a full stake and walking away with almostnothing. Every founder signing a Series A term sheet should understand exactlywhat these clauses do.

What founder vesting actually is

Despite the name, foundervesting does not mean founders earn their shares over time from scratch.Founders already own the shares at incorporation. Vesting in the fundraisingcontext is a reverse vesting mechanism. The shares are owned, but if the founderleaves before the vesting period ends, a portion of those shares goes back tothe company or to the cap table at a discounted or nominal price.

The principle, from theinvestor's perspective, is straightforward. If a co founder walks away one yearinto a five year vesting period, the company should not be left with anabsentee shareholder holding a meaningful block of the equity. Reverse vestingmakes sure the equity follows the work.

Typical structures in Belgian deals

The Belgian market hasconverged on a fairly standard structure. Four year vesting with a one yearcliff is the default. The cliff means that if the founder leaves in the firsttwelve months, nothing has vested. After the cliff, vesting is typically monthlyor quarterly, linear over the remaining period.

Some deals apply vestingonly to a portion of founder shares, leaving a base block fully vested atsigning. This is negotiated and worth asking for, especially for founders whohave already built the company for several years before the institutional round.

Good leaver versus bad leaver

The key question is whathappens to unvested shares when the founder leaves. The answer depends onwhether the founder is classified as a good leaver or a bad leaver.

A good leaver typicallyretains all vested shares and may receive additional treatment on unvestedones. Classic good leaver triggers include death, permanent disability,dismissal without cause, and sometimes resignation after a minimum period.

A bad leaver loses asignificant portion of their equity, often including vested shares at adiscounted buyback price. Bad leaver triggers typically include voluntaryresignation within the vesting period, dismissal for cause, and material breachof the shareholders agreement.

The traps in bad leaver definitions

This is where the draftingmatters most. Several definitions deserve close scrutiny.

Dismissal for cause. Whatqualifies as cause? A tight definition limits it to gross misconduct, fraud, ormaterial breach of the shareholders agreement. A loose definition can captureperformance issues, disagreement with the board, or strategy disputes. Thedifference is material.

Voluntary resignation. Isit automatically bad leaver, or is there a carve out for resignation after acertain period? A bad leaver clause that catches any resignation for the fullvesting period is highly restrictive. A three year cliff after which voluntaryresignation becomes good leaver is much more founder friendly.

Buyback price. At whatprice does the company or investors acquire the forfeited shares? At the lowerof cost or fair market value is aggressive. At fair market value is fair. Themechanism should be clearly defined, with a dispute resolution path.

Acceleration on exit

A separate but criticalmechanism. If the company is sold before vesting is complete, founders usuallywant accelerated vesting so they receive their full stake on exit. Twostructures exist. Single trigger acceleration vests all remaining shares on achange of control. Double trigger acceleration vests remaining shares only ifthe founder is terminated after the change of control. Investors generallyprefer double trigger. Founders should push for single trigger, at least on aportion of their shares.

What to negotiate before signing

The term sheet is themoment to negotiate these clauses, not the shareholders agreement draft. Oncethe term sheet is signed, most investors treat vesting terms as closed. Keypoints to clarify at term sheet stage: the length of the vesting period, the cliff,what portion of shares is subject to reverse vesting, the good leaver and badleaver definitions, the buyback price mechanism, and the acceleration structureon exit.

The Dups approach

At Dups, we review foundervesting and leaver clauses on every Series A and later mandate, well before theshareholders agreement is drafted. We model what each clause means in concreteexit scenarios and make sure founders understand exactly what they are signing.The clauses that matter most are the ones that activate when things go wrong,and founders should never discover them at that moment. If you are about tosign a term sheet with vesting mechanics, let us look at the language first.

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