Deal Terms
Cliff
Last updated
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.
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.
Related Concepts
Further Reading
VC Term Sheet Template & Guide: Every Clause Explained with Examples
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How to Write an LPA: The Limited Partnership Agreement Guide for Fund Managers
A practical 2026 guide for venture capital and private equity fund managers on drafting, negotiating, and operating under a Limited Partnership Agreement (LPA): key sections, ILPA standards, costs, lawyer selection, and common mistakes.
Venture Capital Due Diligence Checklist: 75+ Items Every Investor Should Verify
The definitive VC due diligence checklist: 75+ items across team, market, product, financials, legal, and customers. Know exactly what to verify before writing a check.
Venture Capital Salary & Compensation Guide 2026: Every Level Explained
A detailed breakdown of 2026 venture capital compensation across every role—from analyst to managing partner—including salary bands, bonus structures, carry mechanics, fund size effects, geography adjustments, and negotiation tactics.
How Vesting Works at Startups: Cliffs, Schedules, and Acceleration
Your equity doesn't belong to you all at once. Vesting determines when you actually earn your shares — and what happens to them if you leave early, get fired, or the company gets acquired.
Startup Equity Compensation Explained: Stock Options, RSUs, and More
ISOs, NSOs, RSUs, restricted stock — startup equity comes in many flavors. Here's what each type actually means for your compensation, your taxes, and your financial future.
Comparisons
Frequently Asked Questions
What is Cliff in venture capital?
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.
Why is Cliff important for startups?
Understanding Cliff is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Cliff fall under in VC?
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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