When someone joins your startup, whether a co-founder or early employee, you may promise them equity. But what if they leave in a few months?
That’s where the cliff comes in.
What Is a Cliff?
A cliff is the minimum amount of time someone must stay before any of their equity starts vesting.
Think of it as a probation period, but for equity.
Until the cliff is reached, zero equity vests. Once the cliff passes, the first chunk vests, and then it vests gradually (usually monthly for startups with human friendly policies) after that.
Standard Cliff Terms
Most startups use a 1-year cliff with a 4-year vesting schedule. That means:
- Year 1: Nothing vests until you hit the 12-month mark.
- After Year 1: 25% of equity vests all at once.
- Then: The rest vests monthly or quarterly or annually over the next 3 years.
Example
Let’s say you grant 4% equity to an early team member on a 4-year vesting with a 1-year cliff.
- If they leave after 6 months → they get 0%
- If they stay for 12 months → they get 1% (25%)
- After that, they vest the remaining 3% over 3 years
This protects your cap table from people who leave early, while still rewarding long-term commitment.
Why Startups Use Cliffs
- Avoid “dead equity”: where someone who left still owns part of your company
- Encourage commitment: cliffs show you’re serious about long-term value
- Protect cap table: especially important before external funding
- Investor-friendly: VCs expect founders to have cliffs too
Who Should Be on a Cliff?
| Role | Should Have a Cliff? | Why |
|---|---|---|
| Founders | Yes | Keeps long-term alignment |
| Early Employees | Yes | Ensures contribution before reward |
| Advisors | Yes | Avoids over-rewarding inactive roles |
India-Specific Insight
- Most VCs in India insist on cliffs in founder vesting schedules before Series A
- ESOP policies in India typically use 1-year cliffs with 4-year vesting
- Companies must clearly define cliffs in offer letters and SHA/ESOP docs to avoid legal confusion
Mistakes to Avoid
- Offering full equity upfront with no cliff
- Forgetting to add cliff language to employment or SHA documents
- Using different cliff terms for co-founders (causes imbalance)
Final Thought
A cliff doesn’t limit your team, it protects your mission with fairness.
A well-structured cliff ensures equity goes to the people who stay, build, and contribute to your long-term vision.