Deal Terms
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Quick Answer
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.
What good looks like
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.
VC Beast Take
The one-year cliff is startup orthodoxy, but it's often poorly explained to early employees who don't realize they get zero equity if they leave at 11 months. Smart founders use cliffs strategically — shorter cliffs for senior hires in competitive markets, longer cliffs for roles with extensive training periods. Some companies are experimenting with monthly vesting from day one to improve retention.
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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 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.
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.
Understanding Cliff is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Cliff falls under the deal-terms category in venture capital. This area covers concepts related to the financial and legal terms that define investment agreements.
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