Full Definition
A cliff is a provision in a vesting agreement that requires a minimum period of service (usually 12 months) before any equity begins to vest. If the person leaves before the cliff, they receive no equity at all.
How the Cliff Works
- Standard cliff period: 12 months
- At the cliff date, a portion (typically 25%) vests immediately
- After the cliff, remaining equity vests monthly or quarterly
- If the person leaves before the cliff, they get zero shares
Purpose of the Cliff
The cliff protects companies from granting equity to someone who leaves shortly after joining. It ensures that only people who make meaningful, sustained contributions earn equity in the company.
How the 1-Year Cliff Works
Real-World Example
An employee with a 1-year cliff and 4-year vesting who leaves after 8 months receives zero shares.
Frequently Asked Questions
What happens if you leave before the cliff?
Is a 1-year cliff standard?
Related Terms
The process by which an employee or founder earns their equity over time based on continued service.
Ownership interest in a company, represented by shares of stock.
The right to buy company shares at a predetermined price, commonly used as employee compensation in startups.
A provision that speeds up the vesting of equity, typically triggered by an acquisition or termination.
A reserved percentage of shares set aside for future employee stock options and equity grants.
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