Cliff Period

The initial period before any equity vests, typically one year.

Definition

A cliff period is the minimum time before any equity vests. The standard is a 1-year cliff on a 4-year vesting schedule. If someone leaves before the cliff, they receive zero equity. On the cliff date, a chunk of equity (typically 25%) vests at once, and then monthly or quarterly vesting begins. The cliff exists to protect companies from giving equity to short-tenured employees or co-founders who don't work out.

Different relationships may warrant different cliff structures. Advisors often vest over 2 years with a 3-month cliff. Key executives might negotiate a shorter cliff or partial acceleration.

Why it matters for founders

The cliff protects the company from giving ownership to people who leave early. It's especially critical for co-founder agreements where a departing founder with unvested equity could create a "dead equity" problem that makes fundraising difficult.

Example

A startup hires a VP of Engineering with a 4-year vesting schedule and 1-year cliff. At month 10, the VP realizes it's not a fit and leaves - they receive zero equity. If they had stayed 2 more months, they would have vested 25% of their grant on the cliff date.