Cliff Vesting

Cliff Vesting (Summary)

Cliff vesting is a common startup equity structure where you earn no equity for an initial period (the cliff)—usually 12 months—and then a large portion vests all at once. After that, the rest vests gradually (monthly or quarterly) over the remaining term, typically a total of 4 years.

How It Works

• Standard structure: 4-year vesting with a 1-year cliff.
• Months 1–12: 0% vested. If you leave or are terminated before the cliff date, you get nothing.
• Day 366 (Month 12): 25% of your total grant vests immediately.
• Months 13–48: The remaining 75% vests in equal installments (usually monthly) until you reach 100% at 4 years.

The cliff protects the company from granting equity to people who leave quickly, while rewarding those who stay at least a year.

Example

You join a seed-stage startup and receive options for 1% of the company, vesting over 4 years with a 1-year cliff:

• Months 1–12: 0% vested. Leave at month 11 → 0%.
• Month 12: 25% vests → 0.25% of the company.
• Months 13–48: Remaining 0.75% vests monthly at 0.0625% per month.
• Month 48: Fully vested at 1%.

If the company exits at $100M after 24 months:

• Vested ownership: 0.25% (cliff) + 12 × 0.0625% (months 13–24) = 0.5%.
• Gross value: 0.5% of $100M = $500K.
• After strike price, taxes, and liquidation preferences, your net might be ~50–70% of that.

What to Watch Out For

• Cliffs longer than 12 months
  • Some companies push for 18-month cliffs, especially for senior roles.
  • Treat this as a red flag unless there’s a strong, specific justification (e.g., very long product cycles).