Time-based vesting is not the only way to distribute shares; vesting can also be done using milestones, which has proven to be a beneficial method for both a company and the shareholders. This method establishes a correlation between the vesting level and the value created by the shareholder.
Proponents of milestone-based vesting prefer this method to the traditional time-based vesting because the latter assumes that the company grows in a linear fashion. However, this is not always the case, as companies may experience spurts of growth, as well as sudden decreases in value due to various internal and external factors.
Consequently, using milestone-based vesting will reflect the changes in value and will cause the shares to vest accordingly. That being said, the time between one milestone and the next may vary, depending on the company’s overall performance. Additionally, in the event of a decreasing value, the shareholder’s vested equity will also decrease (i.e. it will correlate with the company’s performance).
Another important benefit of milestone-based vesting is that a co-founder (shareholder) who leaves the company will not leave with substantial equity, as he or she might not have unlocked further milestones.