A Founder's Guide to Vesting and Reverse Vesting in Australia

The core idea in plain English

Vesting is the mechanism that makes equity "earned over time" rather than given all at once. If a co-founder walks out after six months, still holding 40% of the company, everyone who is still grinding is working partly to make an absent person rich. Vesting prevents that, and it's now a non-negotiable part of serious startup capital structure.

Forward vesting vs reverse vesting

The two structures achieve a similar economic result with different legal mechanics.

With forward vesting (typical for employees), you're promised a set number of shares but don't actually own them until they vest over time. You earn them as you go.

With reverse vesting (typical for founders), you're issued all the shares upfront and legally own them from day one — including voting rights and dividends. But the company has a contractual right to buy those shares back at a nominal price if you leave before they have vested with you. The founder initially receives full ownership of their allocated shares, but those shares are subject to a vesting schedule. Over time, fewer and fewer shares are at risk of being clawed back.

Founders almost always prefer reverse vesting because it gives them immediate ownership and voting rights, starts the capital gains tax holding-period clock immediately, and avoids the awkwardness of "earning" shares in a company they're supposed to be running.

Reverse vesting is standard in Australian startups

Pretty much every serious investor expects it. External investors, such as venture capital firms or private equity funds, often require reverse vesting as part of their investment terms. If you haven't put it in place before fundraising, your first angel or VC round will almost certainly require you to adopt it.

The rationale is straightforward. An absent founder holding 30% of the cap table is a huge red flag for any incoming investor. Reverse vesting aligns everyone with long-term outcomes and protects the remaining co-founders from subsidising deadweight if one founder bails. It also just signals professionalism and forethought.

Standard terms

The market-standard schedule in Australia mirrors international norms: a four-year vesting period with a 12-month cliff. Nothing vests in the first year — if you leave inside 12 months, you lose all of your unvested shares. At the 12-month mark, 25% typically vests at once, and the remaining 75% then vests in equal monthly (sometimes quarterly) instalments over the following 36 months.

The vesting commencement date is usually the date of incorporation, but founders who have been working on the business for a while before then can sometimes negotiate an earlier commencement date to credit that prior work.

Acceleration

Acceleration clauses allow your unvested shares to vest faster when specific events occur, most often a sale of the company.

Single-trigger acceleration means the vesting accelerates on a change of control alone. Double trigger acceleration — more common and more investor-friendly — requires both a change of control and your termination within a set window after (typically 12 months). Double-trigger protects you from being acquired and then fired the next day, without giving the acquirer a windfall by instantly vesting everyone's equity.