Cliff
klif
The minimum period an employee must work before any equity vests, typically one year in startup vesting schedules.
A cliff is the initial period of a vesting schedule during which no equity vests. The standard is a 1-year cliff on a 4-year vesting schedule. If you leave before the cliff, you get nothing. If you stay past the cliff, your first year of equity vests all at once.
The cliff protects the company from granting equity to someone who leaves quickly. Hiring is uncertain. Some hires do not work out. Without a cliff, an employee who leaves after two months would keep 4% of their stock options grant. With a cliff, they keep nothing.
The cliff is stressful for employees, especially in the months leading up to it. Some companies have moved to shorter cliffs (6 months) or no cliff for senior hires as a recruiting advantage. But the 1-year cliff remains the industry standard.
Examples
An employee reaches their cliff.
On their 1-year anniversary, 25% of their options vest all at once. They went from 0 vested shares to 2,500 vested shares in a single day. Starting month 13, an additional ~208 shares vest each month.
An employee is terminated before the cliff.
The employee is let go after 10 months. They do not reach the 1-year cliff. They forfeit their entire option grant. Those options return to the company's pool. If the termination had happened two months later, 25% would have vested.
A senior hire negotiates cliff terms.
A VP-level candidate has 20 years of experience and is taking a significant pay cut to join a startup. They negotiate: no cliff, monthly vesting from day one. The company agrees because the candidate is proven and the risk of early departure is low.
Frequently asked questions
Why do companies use a cliff?
To protect against granting equity to employees who leave quickly. Without a cliff, someone who leaves after one month would keep 2% of their grant. The cliff ensures that equity only goes to people who stay at least a year.
Can you negotiate the cliff?
Yes, especially for senior or experienced hires. Options include removing the cliff entirely, reducing it to 6 months, or starting with partial vesting. The company's willingness depends on how much they want the candidate and how proven the candidate is.
Related terms
The process by which an employee earns their equity over time, typically over four years with a one-year cliff.
The right to purchase company shares at a fixed price (the strike price), typically granted to employees as part of compensation.
Ownership in a company represented by shares of stock, which entitle the holder to a proportional share of the company's value.
A company's promise to give an employee shares of stock after vesting conditions are met, with no purchase required.
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