Fundraising & Rounds
What is vesting and a cliff in startup equity?
Vesting is the schedule by which you earn your equity over time. A cliff is a minimum tenure required before any equity vests — typically 1 year.
Vesting and cliffs are the mechanisms that prevent people from grabbing equity and leaving. They align incentives by tying ownership to continued contribution.
Standard vesting schedule: 4 years total, monthly vesting after a 1-year cliff. This means: nothing vests for the first 12 months. On month 13, 25% of your total grant vests all at once (the cliff). After that, 1/48th of your total grant vests each month for the remaining 36 months.
Example: You're granted 48,000 options. After 12 months: 12,000 vest. Every month after that: 1,000 more vest. After 4 years: all 48,000 are vested.
The cliff protects the company. If someone leaves in month 10, they get nothing. This prevents early departures from walking away with significant equity for a short stint.
Founder vesting: Founders should also have vesting on their equity, even though they already 'own' their shares. Investors require this to protect against a founder leaving early. Common: 4-year vesting with 1-year cliff and credit for time already worked.
Acceleration: Some grants include acceleration clauses — if the company is acquired, unvested shares automatically vest (single-trigger acceleration) or vest if you're fired post-acquisition (double-trigger acceleration). Double-trigger is the standard; single-trigger is rare and expensive.
Equity that isn't vested isn't really yours. Always know your vesting schedule.
Related questions
What is an option pool and why do VCs require one?
An option pool is a set of shares reserved for future employee equity grants. VCs require it to ensure there's enough equity to attract and retain talent after they invest.
What is a cap table?
A cap table (capitalization table) is a spreadsheet or document that shows who owns what percentage of a company — founders, employees, investors — accounting for all shares, options, and convertible instruments.
What is a 409A valuation?
A 409A valuation is an independent appraisal of a startup's fair market value for common stock, required by the IRS to set legal strike prices for employee stock options.