Vesting Cliff

A vesting cliff is the minimum time period a person must remain with a company before any granted equity vests. Leaving before the cliff date forfeits the entire grant. The startup standard is a one-year cliff inside a four-year vesting schedule, applied to both employees and founders, and built into virtually every cap-table-tool default (Carta, Pulley, AngelList Equity).

In practice, the one-year cliff works as a binary test. An employee granted 48,000 options on a four-year monthly schedule vests zero options for the first 365 days. On day 366, exactly 12,000 options (25% of the grant) vest at once. From then on, the remaining 36,000 vest at 1,000 per month for three years. The cliff exists to protect the company and the cap table from short-term hires walking away with permanent equity. Without it, a hire who quits at month four would keep 8.3% of their grant (4/48), which over hundreds of grants creates a cap table littered with tiny stakes held by people who barely worked there.

Why the cliff is specifically 12 months:

Employee evaluation window: by month 12, both sides know whether the hire is working. Cliff aligns with the natural performance-evaluation rhythm.

Tax structure compatibility: ISO grants need to be exercisable for 10 years; the one-year cliff doesn't interfere with the §422 holding-period math (one year post-exercise plus two years post-grant for qualifying disposition).

Industry convention: NVCA model documents, every major Silicon Valley law firm (Cooley, Wilson Sonsini, Goodwin), and every cap-table tool default to one year. Deviating signals inexperience.

Recruitment vs retention balance: shorter cliff (3-6 months) loses too much retention discipline; longer cliff (18-24 months) loses too much recruiting power.

The exceptions:

• Senior executive hires (VP+) sometimes negotiate double-trigger acceleration or partial cliff waiver as part of joining. Common at later-stage companies recruiting from competitors.
• Founder vesting credit for pre-incorporation work: 6-12 months of "pre-vesting" credit can effectively eliminate the cliff for founders who have been building for over a year. Negotiated at the first priced round.
• Performance-based grants for executives may have milestone-based rather than time-based cliffs.
• Friends-and-family or non-venture grants sometimes use no cliff or shorter cliffs. Rare in venture-backed companies; common in bootstrapped/lifestyle businesses.

The day-365-vs-366 reality:

The cliff is genuinely binary, but in practice companies often handle the edge cases informally. An employee terminated on day 360 (involuntarily, not for cause) usually has the cliff date waived by the board as a courtesy. An employee who resigns on day 364 to take another job almost never gets that courtesy. The cliff exists to discipline behavior; companies enforce it when it should be enforced and waive it when it shouldn't.

What founders get wrong (specific failure mode): Negotiating away the cliff for an early employee "because they're a friend" or "because they took a pay cut." That is the exact hire who becomes the cap table cleanup six months later. The friend takes another offer in month 8, has fully-vested equity because there's no cliff, and now owns a permanent stake in the company while contributing nothing. The pay cut was supposed to be compensated by equity that didn't actually require commitment. The right discipline: standard cliff, no exceptions for friends or family, and structure pay-cut compensation as a larger grant on a normal schedule (not a waived cliff).

Related: Vesting · Founder Vesting · Reverse Vesting · Option Pool · 83(b) Election

FAQ

How long is a typical vesting cliff?
One year, inside a four-year total vesting schedule. Nothing vests for the first 12 months; on the cliff date, 25% vests at once, and the rest vests monthly (1/48th of total per month) over the next three years. Industry-standard across NVCA documents, every major startup law firm, and every cap-table tool default.

What happens if I leave one day before the cliff?
You forfeit the entire grant. The cliff is binary: leave on day 364 and you keep nothing, leave on day 366 and you keep 25%. There is no partial credit, no proration. Companies occasionally waive the cliff for involuntary terminations (layoffs, restructuring) as a courtesy, but a voluntary departure pre-cliff almost always means zero.

Do all startups use a one-year cliff?
Almost all venture-backed startups do, for both employees and founders. Shorter or no cliffs occasionally appear in non-venture, bootstrapped, or very senior executive grants, but they're exceptions. If you see a startup offering a grant with no cliff or a shorter cliff than 12 months, that's a signal worth understanding.

Can founders negotiate vesting credit for time worked before incorporation?
Sometimes, yes. If a founder spent 12+ months building toward the company before incorporation, investors at the first priced round will often grant 6-12 months of "pre-vesting" credit, effectively eliminating the cliff. The leverage is documentation: timestamped commits, contracts with early users, customer LOIs. "I had the idea" is not enough; "I shipped product to paying customers" is.