Vesting is the process of earning your equity over time, contingent on your continued service to the company. It’s not unique to Switzerland—startups worldwide use vesting schedules—but Swiss companies have adopted specific legal structures that make the process work within Switzerland’s corporate framework.
For employees receiving stock options at an ETH spin-off, founders incorporating an AG in Zurich, or investors evaluating a term sheet, understanding how vesting works is essential. This article explains the mechanics, the standard 4-year schedule with a 1-year cliff, and why this structure protects both companies and equity holders.
What Is Vesting?
Vesting means you earn your equity gradually, not all at once.
When a company grants you shares or stock options, those grants typically come with a vesting schedule. You don’t fully own the equity on day one. Instead, you gain ownership rights over a set period — usually four years — as long as you continue working for the company.
Why vesting exists
Vesting protects the company from granting significant equity to someone who leaves shortly after joining. For a startup, losing a co-founder or key employee in the first six months while they retain 25% of the company creates a major problem. That departing person holds valuable equity but contributes nothing going forward.
Vesting also aligns incentives. When your equity vests over time, you have a strong reason to stay and help the company grow. Your financial interests match the company’s long-term success.
The Standard Schedule: 4 Years with a 1-Year Cliff
Swiss startups — including spin-offs from EPFL and ETH Zurich — typically use a four-year vesting schedule with a one-year cliff. This structure has become the standard, endorsed by SICTIC (the Swiss angel investor network) and expected by institutional investors.
How the schedule works
During your first year, no equity vests. This initial period is called the “cliff.” If you leave the company before completing one full year of service, you forfeit all unvested shares or options. You receive nothing.
On your one-year anniversary, 25% of your total equity grant vests immediately. If you were granted 40’000 stock options, 10’000 options become exercisable after one year.
After the cliff, the remaining 75% of your equity vests in equal installments over the next three years. Vesting typically occurs monthly or quarterly. Using the 40’000 option example, the remaining 30’000 options would vest at a rate of 833 options per month (or 2,500 per quarter) over months 13 through 48.
What this means in practice:
- Month 6: You leave the company. Result: You receive zero equity.
- Month 12: You complete one year. Result: 25% of your equity vests (10’000 options).
- Month 18: Six months past the cliff. Result: 37.5% of your equity is now vested (15’000 options total).
- Month 48: Four years complete. Result: 100% vested (all 40’000 options).
The cliff protects the company during the critical early period when cultural fit and performance become clear. The gradual vesting afterward encourages retention through the full four-year term.
Vesting for Employees: Stock Options and RSUs
Most Swiss startup employees receive equity compensation through stock options. These options give you the right to purchase company shares at a certain price (the “strike price” or “exercise price”) after your options vest.
How employee vesting works
You receive a grant letter specifying the number of options, the strike price, and the vesting schedule. For example: “You are granted 40’000 stock options at a strike price of CHF 1.00 per share, vesting over four years with a one-year cliff.”
After the cliff, as options vest each month or quarter, you gain the right to exercise them. That means you can buy the underlying shares by paying the strike price. You don’t have to exercise immediately. Most option agreements give you a 10-year window to exercise vested options (though this window may shrink to 90 days if you leave the company).
Some companies grant restricted stock units (RSUs) instead of options. RSUs convert directly to shares upon vesting without requiring you to pay a purchase price. However, RSUs are less common at early-stage Swiss startups because they create immediate tax liabilities upon vesting.
Tax implications for employees
Swiss tax treatment of equity compensation is complex. For stock options, taxation generally occurs when you exercise the options, not when they vest. The taxable income is the difference between the shares’ fair market value at exercise and the strike price you paid.
For RSUs, taxation occurs at vesting. When the RSU converts to actual shares, you owe income tax and social security contributions (AHV/IV/EO) on the share’s fair market value at that moment.
Canton-specific tax rules may create variations. Geneva, for example, has published specific guidance on startup share valuation and potential tax-free capital gains upon exit. Because of this complexity, consult a qualified Swiss tax advisor before making decisions about exercising options or accepting RSU grants.
Vesting for Founders: Reverse Vesting in Switzerland
While employees receive unvested options that vest over time, founders face a different situation. Founders typically own their shares from day one. These shares were issued when the company incorporated. So how does vesting work?
Swiss startups use a legal structure called “reverse vesting” to create vesting schedules for founder shares.
How reverse vesting works
At incorporation, founders receive all of their shares immediately. Founders appear on the company’s cap table as full shareholders. However, the shareholders’ agreement (SHA) includes a clause giving the company the contractual right to repurchase a portion of those shares at a nominal price (often CHF 0.01 per share or the original issuance price) if the founder leaves before the vesting period completes.
This repurchase right diminishes over time according to the vesting schedule (typically the same four-year schedule with a one-year cliff).
Practical outcome
From the founder’s perspective, reverse vesting functions identically to traditional vesting. If you leave before the cliff, the company can repurchase nearly all your shares. If you leave after two years, the company can repurchase 50% of your shares (the unvested portion). After four years, the repurchase right disappears entirely because your shares are fully vested.
Why reverse vesting is standard in Switzerland
This structure aligns with Swiss corporate law under the Code of Obligations. Swiss AG (Aktiengesellschaft) structures make it simpler to issue shares at incorporation and then manage vesting through contractual repurchase rights rather than issuing shares gradually over time.
Investors — particularly those following SICTIC guidance — will almost always require founder vesting. This protection ensures that if a co-founder leaves early, the remaining founders and investors can recover that equity to use for hiring a replacement or incentivizing the existing team.
The shareholders’ agreement is the critical document. Vesting terms, including the repurchase right, must be clearly spelled out in the SHA. This contract is binding under Swiss law, making the vesting schedule enforceable.
Why the One-Year Cliff Matters
The cliff serves a specific purpose: It protects the company during the trial period when fit and performance become apparent.
For employees, the cliff means your first year is an “all or nothing” proposition. If the role doesn’t work out (or if you decide the company isn’t right for you) you leave with no equity. This scenario may seem harsh, but it prevents a situation where dozens of early employees who stayed only a few months each keep small equity stakes. Such a situation would complicate the cap table and probably future fundraising as well.
For founders, the cliff protects co-founders from each other. Founding teams might experience conflict or discover misaligned visions during the first year. If a co-founder leaves in month six, the cliff ensures that person doesn’t retain 25% or 33% of the company moving forward.
From an investor’s perspective, the one-year cliff is very important. Angel investors and venture capital firms view it as a basic protection. They want assurance that the people holding significant equity stakes are committed for at least one full year.
Accelerated Vesting: What Happens in an Acquisition
Vesting schedules typically include provisions for “accelerated vesting” where equity vests faster than the standard schedule.
The most common acceleration scenario occurs when another company acquires the startup. Swiss startups almost always use “double-trigger acceleration” rather than “single-trigger acceleration.”
Single-trigger acceleration means your unvested equity vests immediately upon a single event, usually an acquisition or merger. This structure is rare in Switzerland because investors don’t like it. If all employees’ unvested equity vests the moment an acquisition closes, key employees have no incentive to stay and help the acquiring company. Many will leave immediately.
Double-trigger acceleration requires two events to occur before unvested equity vests:
- A change of control (the acquisition itself)
- An involuntary termination without cause (or resignation for “good reason”) within a specified period after the acquisition (typically 9 to 18 months)
This structure protects employees while also protecting the acquiring company’s interests. If the acquiring company fires you without cause after the acquisition, your unvested equity accelerates and vests immediately. But if you remain employed through the transition period, you continue vesting on the original schedule.
Swiss investors — following SICTIC best practices — typically require double-trigger acceleration as standard. Single-trigger acceleration is viewed as a red flag that may scare off future investors or acquirers.
Vesting from an Investor's Perspective
For investors evaluating a Swiss startup, vesting schedules are a due diligence checkpoint.
Investors look for:
- Founder vesting in place: If founders have no vesting or have already fully vested, investors often require new vesting schedules as a condition of investment. This requirement ensures founders remain committed post-investment.
- Standard four-year schedule: Deviations from the 4-year/1-year cliff standard raise questions. Shorter vesting periods (e.g., two years) may signal weak governance or founder-friendly terms that don’t protect investor interests.
- Clean cap table: Equity held by people who left early creates a messy cap table. Investors want to see that vesting schedules prevent early leavers from keeping significant stakes.
- Appropriate acceleration terms: Double-trigger acceleration protects both employees and the company’s value in an exit scenario. Single-trigger or no acceleration terms signal unsophisticated deal structures.
When founders can demonstrate clean vesting practices, they signal maturity and understanding of investor expectations. This smooth diligence process builds trust and makes fundraising easier.
What Happens If You Leave Early
Understanding the consequences of leaving before your equity fully vests helps you make informed career decisions.
For employees
If you leave before the one-year cliff, you give up all unvested options. You receive no equity compensation for your time at the company.
If you leave after the cliff but before four years, you keep the options that have already vested. However, you typically have only 90 days to exercise those vested options after your departure. If you don’t exercise within that window, the options expire and you lose them.
Some Swiss startups offer extended exercise windows (e.g., 10 years) as a retention tool, but this practice is less common. The 90-day post-termination exercise window is standard.
For founders
If you leave before the cliff, the company can repurchase nearly all your shares at nominal value through the reverse vesting clause in the shareholders’ agreement.
If you leave after partial vesting — for example, after two years — the company can repurchase the unvested portion (in this case, 50% of your shares). You retain the vested shares, but you lose half your founder equity.
The distinction between “good leaver” and “bad leaver” scenarios can affect the repurchase price. If you leave voluntarily or are terminated for cause (a “bad leaver”), the company may repurchase your shares at the original nominal price. If you’re terminated without cause or leave for specified good reasons (a “good leaver”), the repurchase might occur at fair market value. These terms are negotiated in the shareholders’ agreement.
Negotiating Vesting Terms
While the four-year schedule with a one-year cliff is standard, some aspects of vesting are negotiable.
For employees
- Acceleration provisions: You may be able to negotiate partial acceleration (e.g., 50% of unvested equity vests) upon a change of control, rather than relying entirely on double-trigger.
- Exercise window: Try to negotiate an extended post-termination exercise window beyond 90 days. This prevents the “forced exercise” problem where you must come up with cash to exercise within three months or lose your options.
- Vesting start date: Some companies allow your vesting to start on your actual start date rather than the beginning of the following month or quarter, giving you a slight advantage.
For founders
- Credit for past work: If you’ve been working on the company for months before formal incorporation, you may negotiate “credit” toward the cliff. For example, if you’ve already worked six months, the cliff might be reduced to six months instead of one year.
- Vesting on prior shares: In later funding rounds, investors may require you to place some of your existing vested shares back under a new vesting schedule to ensure continued commitment. The terms can be negotiable. You might agree to re-vest 25% of your shares rather than 50%.
Investors and employers have strong incentives to maintain standard terms. Significant deviations from the 4-year/1-year cliff structure may signal misalignment and make future fundraising harder.
Why Vesting Works for Everyone
Vesting creates a system where everyone’s interests align over the long term.
For companies, vesting ensures that equity goes only to people who contribute over time. It protects against early departures and builds a committed team.
For employees, vesting provides meaningful compensation that grows more valuable as the company grows. The structure encourages you to stay through key company milestones, when your equity is most likely to become valuable.
For founders, vesting protects you from co-founder risk. It ensures that everyone building the company is equally committed.
For investors, vesting is a risk management tool. It signals that the founding team understands professional norms and that their investment will support committed, motivated founders rather than transient participants.
Swiss startups operating within this standard framework send clear signals to the ecosystem. Companies with well-structured vesting terms in shareholders’ agreements show sophistication and respect for investor expectations. These companies have an easier path to funding from SICTIC members, Swiss family offices, and international venture capital firms.
Disclaimer: Swiss tax treatment of equity compensation is complex and varies by instrument type and canton. This article provides educational information only and does not constitute tax, legal, or financial advice. Consult qualified advisors regarding your specific situation before making decisions about equity compensation.
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