Deal Terms
Cliff
The minimum period an employee must work before any equity vests — typically one year, after which a lump sum of equity vests at once.
A cliff is the initial waiting period in a vesting schedule before any equity vests. In the most common arrangement — a four-year vest with a one-year cliff — an employee receives 0% of their equity during the first 12 months. On the one-year anniversary, 25% vests all at once (the cliff), and then the remaining 75% vests monthly or quarterly over the following three years.
The cliff protects both the company and existing shareholders from giving away equity to employees who leave very early. From the employee's perspective, it creates a meaningful incentive to stay at least through the first year.
In Practice
An employee is granted 48,000 options with a four-year vest and one-year cliff. After 11 months, they resign — they receive 0 options. If they had stayed one more month (12 months), they would have received 12,000 options (25%), then continued vesting at 1,000/month.
Why It Matters
The cliff is one of the most consequential mechanics in startup compensation. Employees who leave before the cliff forfeit all equity, even if they contributed meaningfully to the company's early progress. Understanding this dynamic is essential for evaluating startup job offers and negotiating vesting terms.