TL;DR: Four year vesting schedules with a one year cliff are still the industry standard and likely make sense for most employee hires. However, as time-to-exit continues to stretch, six year vesting schedules have become increasingly popular among co-founders in recent years.

When founders issue equity, the vesting schedule is an important factor to consider. Vesting is the process of getting ownership of equity gradually over a set period of time, as opposed to all at once.

Why is vesting important? Picture this: your startup hires an employee but quickly realizes they aren’t the right fit for the company. The employee might leave after a short period of time and leave with all of their equity. Now, your startup has dead equity — equity that belongs to someone who is no longer contributing to the company.

With vesting, an employee or cofounder will earn their equity over time, as long as they continue working with the company, mitigating the risk of dead equity.

Founders need to consider different vesting schedules. These establish the timeline for how long it will take someone to earn their equity.

The vesting schedule can be broken down into two parts, the cliff and the vesting schedule.

The industry standard is a four year monthly vesting with a one year cliff meaning: At the end of year one, you would receive 25% of your equity and, afterwards, you would receive the remaining 75% gradually each month (1/48th of the total equity amount vests each month).

While four year vesting is the standard, six year vesting has become more common, especially for founding teams.

For employee equity, the four year standard vesting schedule has continued to be standard, with equity refreshes granted to employees who stay longer than four years in order to continue to incentivize their service to the company.

While it is understandable to vest employee equity over for years, as a founder, investors will also expect you to vest your equity. It's very common for cofounders to split up at some point as their company grows. Without vesting, a departing founder could walk away with a quarter, third, or even half of the equity of the company, creating an enormous dead equity problem.

While the four year schedule is still standard, longer vesting schedules are becoming increasingly common among founding teams. This is because founders are expected to be in it for the long haul, and the time it takes to get to IPO has significantly increased in recent years. In the 1980s, when the four year standard began, the median age of startups at IPO was six years. Today, that age has doubled, leaving more time for founding teams to split up on their journey to an exit.

While it may seem easy to default to the industry standard of a four year vesting schedule, there are many times when a six year schedule makes more sense. Think about the timeline and goals of your company and employees, as opposed to blindly following the norm.