Vesting is the process by which an employee gradually earns the right to equity they have been granted — ESOPs or RSUs — typically over a multi-year schedule or upon hitting milestones. Unvested equity is forfeited if the employee leaves; only vested equity is theirs to keep, exercise, or eventually sell.
Why it matters to you
When you buy unlisted shares originating from employee equity, vesting is the first thing to confirm. Only fully vested and exercised shares can legitimately be transferred to you. A typical schedule is four years with a one-year cliff, after which equity vests monthly or quarterly.
Example: An employee on a four-year schedule had vested 75% of their options before selling those vested shares to a pre-IPO investor; the remaining 25% stayed unvested and untransferable.