Vesting and Cliffs in Startup Equity
How vesting and cliffs work in founder and employee equity, and what to check before you sign.
Vesting means you "earn" your equity over time—instead of getting it all on day one. A cliff means you get nothing until you've been there for a set period (e.g. one year), then you get a chunk and continue vesting monthly. Vesting and cliffs protect the company (and other co-founders) from someone who leaves early and keep incentives aligned. Here's how they work and what to check before you sign.
How vesting usually works
4-year vesting with 1-year cliff is the most common. You earn 25% after one year (the cliff), then 1/48 of the total per month (or 1/16 per quarter) for the next three years. If you leave before the cliff, you get nothing. If you leave at 2 years, you keep 50%. The company (or the other co-founders) typically has the right to buy back unvested equity at a low price (e.g. cost or nominal) when you leave. So vesting protects everyone: you're motivated to stay, and if you leave early, you don't walk away with a full share.
What a cliff means
The cliff means you get no equity until you've been there for the cliff period (usually 1 year). So if you leave at 11 months, you get nothing—even though you've been there almost a year. After the cliff, you get the cliff amount (e.g. 25%) and then continue vesting monthly. The cliff is there so the company doesn't give a lot of equity to someone who leaves in month 2. From your perspective, the cliff is a risk: if you're not sure you'll stay a year, understand that you get nothing if you leave before then.
What to look for before you sign
- Vesting schedule. How long? 4 years is standard. Is there a cliff? 1 year is common. What's the monthly or quarterly vesting after the cliff?
- Acceleration. If the company is acquired, does your unvested equity vest (single-trigger) or only if you're terminated after the deal (double-trigger)? Double-trigger is more common; single-trigger is more protective for you.
- Buyback price. If you leave, at what price can the company buy back your unvested equity? Nominal or cost is standard; if it's higher, that's better for you.
- BeforeYouSign can highlight vesting and cliff language in your equity agreement so you know what you're agreeing to before you sign.