Time-based vesting
Last updated
Quick Answer
Time-based vesting earns carried interest in instalments over a defined period, regardless of the fund's progress.1
What it is
The individual's entitlement accrues on a schedule — commonly annually, frequently after an initial cliff. It is simple to administer and it can diverge from the fund's actual lifecycle, which is why some agreements instead vest against deals or blend the two approaches.1
Operational context
What good looks like
Why It Matters
A calendar schedule can vest in full long before the fund produces the gains the carry represents, and that divergence is what deal-based and blended schedules exist to close.1
Term Family
Related concepts
Frequently Asked Questions
What is Time-based vesting in venture capital?
The individual's entitlement accrues on a schedule — commonly annually, frequently after an initial cliff. It is simple to administer and it can diverge from the fund's actual lifecycle, which is why some agreements instead vest against deals or blend the two approaches.
Why is Time-based vesting important for startups?
Understanding Time-based vesting is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.morganlewis-carry-vesting — VC & PE Funds Deskbook — *Carried Interest: Vesting*VC & PE Funds Deskbook — *Carried Interest: Vesting*Morgan, Lewis & Bockius LLP(Time-based vesting earns carried interest in instalments over a defined period, regardless of the fund's progress.)secondary · T2 · vesting-clawback · structure
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