Equity Refresh Strategy: What Early-Stage Companies Get Wrong
Most early-stage companies build a generous initial-grant policy and forget that vesting is a four-year clock. Without a refresh strategy, your best people…
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- Without refresh grants, year-four attrition is structural, not personal.
- Start refresh grants in year 2, not year 4.
- Tie refresh size to performance and to a forward-looking 4-year vest, not tenure.
- Budget refresh as 25–40% of new-grant spend at Series B+.
A standard early-stage equity grant vests over four years with a one-year cliff. Most founders design the initial grants generously and assume the equity story takes care of itself. Three years in, a chart appears on a board slide showing 'vested equity by tenure' and the senior team realises that the people they cannot afford to lose are six months away from having no forward equity left to lose.
The four-year cliff problem
By month 36 of tenure, a typical engineer has 75% of their initial grant vested and 25% remaining over the next 12 months. The marginal cost of leaving has fallen by 75%. By month 42, it is effectively zero. If you have not granted them a refresh by then, you are competing with every recruiter holding a fresh four-year grant. You will lose.
When to start refresh grants
- 1Year 2 (month 18–24)Top performers get a refresh equal to 25–50% of original grant. Resets the forward-vesting clock without ceremony.
- 2Year 3 (month 30–36)Broader refresh: everyone with positive performance gets a grant. Size scales with level and performance.
- 3Year 4+ (annual)Refresh becomes an annual program tied to performance review. Targeted at retention of top performers.
Sizing the grant
| Performance | Refresh as % of original grant | Vest schedule |
|---|---|---|
| Top 10–20% | 50–100% | 4-year, 1-year cliff |
| Strong (next 40%) | 25–50% | 4-year, no cliff |
| Solid (next 30%) | 10–25% | 4-year, no cliff |
| Below bar | 0% — manage performance instead | — |
Tying refresh size to tenure or seniority alone. It becomes an entitlement and stops working as retention. Tie it to performance every cycle, transparently.
Communicating equity well
- Send a personal equity statement annually showing vested, unvested, and refresh — with current 409A value.
- Tell people about the refresh program before they need it; surprise is not generosity.
- Explain the trade-off: refresh grants dilute everyone, including founders. People respect honesty more than spin.
- Do not match competing offers with one-off retention grants — it teaches the wrong lesson and breaks the program.
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