Definition
Cliff (Vesting)
A cliff is an initial period, usually one year, before any of an employee's equity begins to vest.
Under a one-year cliff, an employee who leaves before completing twelve months earns no equity at all; once the cliff is crossed, a chunk vests at once (typically a quarter of a four-year grant) and the rest vests gradually thereafter. The cliff protects the company from giving equity to people who leave very early.
Cliffs are standard in startup option agreements and founder vesting schedules. The combination of a cliff plus monthly vesting over four years is the most common structure in the Indian startup ecosystem.
Related terms
- ESOP PoolAn ESOP pool is the block of equity a startup sets aside to grant as stock options to employees.
- VestingVesting is the schedule over which an employee or founder earns the right to their granted equity or options.
- Founder VestingFounder vesting is the arrangement under which founders' own shares vest over time, so a departing founder forfeits unvested equity.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.