Typically, equity is subject to four-year vesting, meaning co-founders must work for four years to fully earn their equity stake, along with a one-year cliff where no equity is earned if they leave or are fired within the first year. Vesting with a one-year cliff acts as a safety mechanism, allowing you to correct any poor decisions about co-founders without long-term harm to the company.

Companies have engineered systems over many years to retain employees, and signing a contract means entering a retention flow designed to keep you from leaving.

Equity should vest over time, meaning co-founders earn their shares gradually, and cliffs ensure they must stay for a minimum period to receive any equity.

Founders should continue to offer equity to employees throughout their tenure, as this incentivizes long-term commitment and aligns interests.

Founders need to be incentivized to continue working on their startup; without vesting, they could walk away with full ownership at any time, which undermines their commitment to the company.

Loss aversion plays a significant role in why employees stay at FAANG companies; the fear of losing vested equity can lead to irrational decision-making.

Vesting means that founders gain full ownership of their stock over time, and if they leave before the vesting period ends, they may lose unvested shares.

Be cautious of measuring retention over too long a time period, as this can artificially inflate your retention metrics and mislead you about user engagement.

When distributing co-founder equity, consider not just immediate contributions but also long-term motivation over the entire vesting period.