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External investors frequently require “Founders Stock” (i.e. equity owned by management pre-external investors) be subject to...

External investors frequently require “Founders Stock” (i.e. equity owned by management pre-external investors) be subject to a “reverse vesting” schedule again over time and/or performance metrics.  What is a “reverse vesting” schedule, how is it different than a “vesting” schedule, and why is this difference important?

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Reverse vesting is when the co founders of the company are granted shares which they can vest from the time the company is incorporated. Whereas, vesting is when the employee gets full ownership of the employers contribution (STOCK OPTION) after a certain period. Vesting is for the stocks of the company, whereas, reverse vesting is for the actual stock OR shares. Reverse vesting is for co founders, a way to keep them motivated to stay with the company, whereas, Vesting is for employees and is exercised during retirement. The difference is important because vesting is for employees and reverse vesting is for cofounders.

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