Founders stock (also commonly referred to as “restricted stock” and “common stock”) is in most cases shares of a startup’s common stock purchased by the startup’s founders that is subject to repurchase and forfeiture vesting terms. The founders stock if usually the only initial consideration the founders receive from a startup and leads to the highest value for them if the startup has a big exit, such as Facebook and Twitter. Founders stock does not have any legal meaning per se, and is one of the many terms that are used and understood in the tech community (and probably not outside the tech community). Founders stock is usually purchased by founders for par value, commonly $0.001, $0.0001 or $0.00001 per share, shortly after the formation of a startup.

Investors desire that founders receive founders stock to incent the founders to stay with the startup and earn their stock over time or upon achievement of milestones. Investors often invest in the founding team as much as the idea and business plan, and founders stock is the glue that keeps the founders engaged in the startup.