Since the growth of a company depends substantially on its founders, especially in the initial stages, many early-stage investors ask that the founders surrender some or all of their shares if they leave the company within a certain period, whatever the reason for exit. The surrendered shares are usually redistributed amongst the remaining founders or offered to incoming management personnel. This is called reverse vesting.

The objective of reverse vesting is to prevent unnecessary dilution and to avoid rewarding an exiting founder. If a founder leaves, their replacement will need to be incentivised through options. This will result in a dilution of other shareholders’ stake, which can be avoided by transferring the exiting founder’s shares to them.