What is a Vesting Cliff?
A cliff is a waiting period before any equity vests. With a one-year cliff on a four-year vesting schedule, an employee receives nothing if they leave before one year. At the one-year mark, 25% vests immediately, then the remainder vests monthly.
The cliff protects companies from giving equity to employees who leave quickly.
Why Cliffs Exist
Without a cliff, an employee could work one month, vest 2% of their grant, and leave with free equity. Cliffs ensure employees demonstrate commitment before receiving ownership.
One year is standard because it's long enough to evaluate fit but short enough to be fair to employees taking the risk of joining a startup.
Cliff Considerations
For co-founders, cliffs can be contentious. Some use shorter cliffs (6 months) or no cliff but longer vesting. Senior hires sometimes negotiate for partial credit for cliff time already proven at previous roles.
Formula
Cliff Amount = Total Grant × (Cliff Period ÷ Total Vesting Period)
Standard: 25% at 1-year cliff for 4-year vesting
Example
Your SaaS startup uses standard 4-year vesting with 1-year cliff:
- Total grant: 40,000 shares
- Month 1-11: 0 shares vested
- Month 12 (cliff): 10,000 shares vest (25%)
- Month 13-48: 833 shares vest monthly
If the employee leaves at month 10, they get nothing. If they stay past month 12, they keep the first 25%.