What is a vesting cliff?

A cliff is a period (typically one year) during which no equity vests. If someone leaves before the cliff, they get zero shares. At the cliff date, a large chunk vests at once (typically 25% of total grant). The cliff protects against situations where someone joins, contributes briefly, and leaves with meaningful equity.

Do founders need vesting?

Yes. Investors almost always require founder vesting, typically on a 4-year schedule. This protects all parties: if one co-founder leaves early, unvested shares return to the company rather than creating a dead equity problem. Founders can often negotiate credit for time already worked (e.g., 1 year of vesting already completed at closing).

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GLOSSARY

Vesting

Vesting is the process by which equity ownership is earned over time or upon reaching specific milestones. The standard startup vesting schedule is four years with a one-year cliff: no shares vest during the first year, 25% vest at the one-year mark (the cliff), and the remaining 75% vest monthly or quarterly over the next three years. Vesting protects the company and co-founders by ensuring that equity is earned through continued contribution.

Standard structure

Typical: 4-year vesting with 1-year cliff. 25% vests at cliff, then monthly or quarterly after.

Why it matters

Aligns incentives over time. Protects company if someone leaves early. Investors expect founder vesting.

Worked example

10,000 shares, 4-year vest, 1-year cliff. After 1 year: 2,500 vested. After 2 years: 5,000 vested.

Common pitfalls

No founder vesting (red flag for investors); not understanding acceleration clauses; forgetting about exercise windows.

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