Cofounder vesting and the cost of skipping reinvesting at the Series B
Feb 4, 2025
Key Points
- Departing cofounders often leave Series B companies nearly fully vested despite years of execution ahead, creating equity misalignment between those who stay and those who exit.
- Reinvesting, which extends vesting schedules at Series B to reset incentives, is routinely dropped from term sheets despite being standard practice for locking in founding teams through harder growth phases.
- Protecting only the unvested portion while keeping earned equity intact offers a workable compromise that aligns incentives without forcing founders to restart vesting from zero.
Summary
Cofounder Vesting and the Cost of Skipping Reinvesting at the Series B
David Ulevitch, a partner at Andreessen Horowitz, flagged a recurring problem in founder negotiations: when cofounders depart during the growth phase, they often leave fully or nearly fully vested despite years of work remaining ahead.
The concrete example Ulevitch surfaces involves a departing cofounder at what appears to be a late-stage company. The founder's counsel sent an email explaining that the cofounder is "basically fully vested" — meaning they can walk away with substantially all of their equity despite the company still being in early growth. The email notes that a reinvesting proposal was floated during Series B negotiations but "dropped in the final term sheet."
The core problem is structural. Most founders vest over four years. If a company reaches Series B in three years — increasingly common now — the original vesting schedule leaves little unvested equity on the table as motivation for continued work. A departing founder can claim nearly the same stake as the CEO who remains to build for another four, five, or ten years. The incoming capital and expanded scope of work make this misalignment acute.
Reinvesting — extending the vesting schedule at Series B to reset the clock on unvested shares — is the standard fix. It aligns the team staying to execute the bigger vision with meaningful equity upside. But it's often contentious. Founders see reinvesting as a threat: if you're fired or forced out, you lose shares you believe you earned. Investors see it as essential to lock in the team through a longer, harder execution phase.
A workable middle ground exists: extend only the unvested portion while protecting shares already earned. A founder halfway through a four-year vest keeps those two years of earned equity intact and accepts a new four-year vest on the remainder. The tradeoff is clearer and less adversarial than asking founders to restart from zero.
Ulevitch's framing — "Reinvesting is usually the founder CEO's friend" — reframes this as a tool to protect the CEO and active team from equity dilution and misalignment as the company scales. But his example shows the cost of skipping it: you end up in contentious email threads with departing cofounders' counsel, negotiating equity after the fact instead of clarifying incentives upfront.