Proportional vesting occurs when a derivative, like an option, is partially early exercised. Note that it doesn’t apply to fully-exercised shares. We’ll explain with an example below.
In this example we have an option grant of 100,000 shares. It vests monthly over a four-year period with no cliff. This is what the vesting schedule would originally look like if you calculated it in a spreadsheet:
Now let’s say you fully-exercised the option, on 1/2/2015 for 100,000. Because it’s an early exercise, unvested shares are being exercised. This results in a Restricted Stock Award (RSA), which is Common Stock that continues to vest on the same schedule:
The above example is pretty straightforward since the schedule continues as normal. Vesting can be a bit more complex when a partial amount of shares are early exercised. We’ll use the same example as before, but let’s say that the exercise was for 25,000 shares instead. This is what proportional vesting would look like:
You’ll notice that vesting is split proportionally/rateably. This is the method that Capshare supports, as it’s most accurate for various administrative reasons (equal employee/company benefit, compensation expense, etc).
If your option agreement specifies another method, such as vesting the RSA in full before continuing to vest the option, you won’t be able to record an exercise as you normally would in Capshare. Instead, you’ll need to cancel the unvested portion, and record a new common issuance with vesting.