Cliff Vesting

Cliff vesting, also called an equity cliff, is the opening period of a vesting schedule during which no equity vests. When you reach the cliff date, a block of equity vests at once and regular vesting begins.

How it works

• Standard structure: four-year vesting with a one-year cliff.
• Before the cliff: nothing vests. If you leave or are let go before the cliff date, you usually keep no equity.
• At the cliff: 25% of the grant vests at once, the first year’s share.
• After the cliff: the remaining 75% vests in equal monthly or quarterly instalments until the end of year four.

Example

You join a seed-stage startup with options for 1% of the company, vesting over four years with a one-year cliff:

• Leave at month 11: 0% vested.
• Month 12: 0.25% vests at once.
• Months 13–48: the remaining 0.75% vests in 36 monthly instalments of about 0.0208% each.
• Month 24: 0.25% + 12 × 0.0208% ≈ 0.5% vested.
• Month 48: the full 1% has vested.

These are percentages of the company at grant. Later funding rounds usually dilute them.

Why companies use a cliff

Hiring is expensive and early departures are costly for a small team. A cliff gives both sides a year to see whether the role works before any equity changes hands, and keeps very short stints from using up the option pool.

What to watch for

• Cliffs longer than 12 months. Ask why, and what the company expects to learn in the extra time.
• New grants may carry their own cliff. A promotion or refresh grant can restart the clock for that grant.
• Layoffs before the cliff. Unless your agreement provides pro-rata vesting for a termination without cause, you usually get nothing. Ask before you sign.
• Vested doesn’t mean cash. Vested options still have to be exercised, and shares usually pay out only in an acquisition, an IPO or a tender offer.

For the full picture, including exercise windows, acceleration and early exercise, read understanding vesting and cliffs, or map your own dates in the Vesting Planner.