What is Vesting Cliff?

A vesting "cliff" is a period at the beginning of a stock option vesting schedule during which no shares are earned. If an employee leaves the company before the cliff period is over, they forfeit all of their granted options. Once the cliff is passed, a large chunk of the options vests at once.

Base Term for Startups: The cliff is a crucial mechanism to protect startups from "drive-by" equity grants, where an employee joins, receives a large stock option grant, and then leaves after only a few months, taking a chunk of equity with them.

Standard Terms: The most common structure in the startup world is a 1-year cliff on a 4-year vesting schedule. This means the employee earns 0% of their options for the first 12 months. On their one-year anniversary, 25% of their total options vest instantly. The remaining 75% then typically vest monthly or quarterly over the next 36 months.

Base Term Example: An employee with a 1-year cliff leaves after 11 months. They walk away with zero vested options. If they leave after 13 months, they are vested in 25% plus one month's worth of their grant.