Equity refresh and vesting design — the lever most startups misuse
Why initial grants stop motivating after year 2, how mature equity programs design refresh, and the vesting structures the best comp teams are converging on.
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- Initial equity grants are front-loaded for retention; the value declines linearly as it vests, hitting zero remaining motivation at year 4. Refresh grants exist to flatten this 'equity cliff.'
- Typical refresh: 25–40% of initial grant size, granted annually starting at year 2. Top performers may get 'top-up' grants at year 1 or for retention risk.
- Vesting structure is converging on 4-year monthly vest with a 1-year cliff for new hires; 4-year monthly with no cliff for refresh grants.
- The most-litigated equity mistake: failing to update the 409A before issuing refresh grants in a year with a material event — the new grants' strike price becomes immediately taxable.
An employee three years into a four-year vest has 75% of their equity locked in and 25% to go. That remaining 25% does not pay the rent. Without a refresh program, every employee becomes a flight risk in year three — and the equity that retained them initially is worth nothing as a retention tool.
The equity cliff
- →Year 175% unvested
- →Year 250% unvested
- →Year 325% unvested
- →Year 40% unvested
- Year 5+Pure flight risk
Refresh grant mechanics
| Trigger | Typical size | Vesting |
|---|---|---|
| Standard annual refresh (year 2+) | 25–40% of initial grant | 4 years monthly, no cliff |
| Top-performer refresh (any year) | 50–75% of initial grant | 4 years monthly, no cliff |
| Promotion refresh | Bring total unvested to new-level offer parity | 4 years monthly, no cliff |
| Retention grant (counter-offer or pre-emptive) | Variable, often 100–150% of standard | Often 2 years monthly with retention milestone |
Vesting structure choices
- Standard for new hires
- Employee gets nothing if they leave in year 1
- Encourages stay through year 1 critical period
- Required by most VCs in early grants
- Standard for refresh grants
- Standard for boomerangs and known performers
- Used in late-stage public-company equivalent grants
- Reduces year-1 wage-theft optics
Snap and Box popularized longer vests in the late 2010s. Most companies that adopted them have since reverted to 4-year vests because the recruiting friction outweighed the retention benefit. Longer vests now read as a yellow flag for top candidates.
Acceleration and double-trigger
Single-trigger acceleration (vests on acquisition) is rare and usually limited to founders. Double-trigger acceleration (vests on acquisition AND involuntary termination within X months) is standard for executives and senior employees at top tech companies. Negotiable individually below the executive level.
- 1Founder-levelSingle-trigger 50%, double-trigger 100%. Negotiated case by case at founding.
- 2Executive (VP+)Double-trigger 100% acceleration. Standard at most companies past Series B.
- 3Senior IC / DirectorDouble-trigger 50% acceleration. Negotiable case by case.
- 4Standard employeesNo acceleration. Tender offer or assumption by acquirer per the merger agreement.
Frequently asked questions
What's the right initial grant size at Series A?
Carta's Series A data: median engineer grant is 0.10–0.25%, senior engineer 0.20–0.50%, director 0.50–1.00%, VP 0.75–2.00%. Founders and early-employee grants are 1–10%. These compress at each funding round as dilution from new shares dwarfs grant size.
Should we offer RSUs or options?
Pre-IPO: almost always options (NSOs and ISOs depending on employee type) — strike based on 409A. Late-stage pre-IPO and public: RSUs, because the tax burden of options exercise becomes prohibitive at high valuations. The transition usually happens around the unicorn threshold.
What about early exercise?
Allowing early exercise of unvested ISOs is a tax-planning gift to early employees — they file an 83(b) and start the long-term capital gains clock immediately. Costs the company nothing; meaningful win for employees willing to put up the strike price.
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