Investors want to make sure that employees stick around, so they require that Company stock options contain “vesting” terms that allow employees to purchase equity only after they’ve served a certain amount of time. The standard 4-year vesting schedule is: 25% vests after one year and the remaining vests monthly over the remaining 36 months. The Investors require this standard vesting schedule in the Investors’ Rights Agreement, but it is usually not controversial.
Term Sheet Language: All [future] employee options to vest as follows: [25% after one year, with remaining vesting monthly over next 36 months].