What is a Vesting Cliff?
A Vesting Cliff is a critical clause in an equity agreement (for founders or employees) that mandates a recipient must remain with the company for a specific initial duration—usually one year—before they earn the right to keep any of their stock options or shares.
The cliff acts as a probation period for the equity itself. It ensures that only those committed to the company's long-term success are rewarded with ownership.
The Standard Schedule The industry standard for equity compensation is "four years of vesting with a one-year cliff."
- Before the Cliff: If the founder or employee leaves at, say, 11 months, they forfeit 100% of their equity grant.
- Hitting the Cliff: Once they reach the 12-month anniversary, they instantly vest 25% (one-quarter) of their total grant.
- After the Cliff: The remaining 75% then typically vests monthly or quarterly over the remaining three years of the four-year term.
Why the Cliff Exists The cliff protects the company from the nightmare scenario of a co-founder or an early key hire leaving after just a few months but still owning a permanent, untarnished chunk of equity. It is a necessary safeguard built into the Cap Table to preserve equity for active contributors.
Key Takeaway: The Vesting Cliff ensures that equity is earned, not just granted. You must put in a full year of work to validate your commitment and unlock your first batch of shares.
