Cliff Vesting vs Graded Vesting
Cliff vesting gives nothing until a set date, then vests a full block at once. Graded vesting releases ownership in regular increments over time. Startup equity commonly combines them: a one-year cliff at which a quarter of a four-year grant vests, then monthly vesting of the rest. Retirement plans use the same terms for employer contributions under their own rules.
How each works
Cliff vesting. Ownership stays unvested until a specified date, then a set portion vests all at once. Leave before the cliff and you forfeit everything subject to it. Leave after and you keep what vested.
Graded vesting. Ownership vests in regular increments, such as monthly, quarterly, or annually. Each period adds to what you own, so leaving at any point keeps what has vested to date.
Combined schedules. The standard startup schedule for employees and founders is four years with a one-year cliff. Nothing vests in the first year. At the one-year anniversary, 25 percent vests. The remaining 75 percent then vests monthly over the next 36 months. The cliff is the gate; graded vesting follows it.
Why the cliff exists. It protects the company and other shareholders from granting permanent equity to someone who leaves or turns out to be a poor fit within months. It also gives both sides a period to decide whether the relationship works.
Why graded vesting follows. After the cliff, monthly vesting ties ownership to continued contribution without creating large annual jumps that encourage people to stay only until the next block.
Variations
Some companies use longer schedules, back-weighted schedules that vest more in later years, shorter or no cliffs for senior hires or advisors, or refresh grants with their own schedules. Founders often receive credit for time already worked when vesting is imposed at a financing.
Reading the differences
For the person receiving equity. A cliff concentrates risk in the first year: leaving at eleven months means walking away with nothing. Graded vesting reduces that risk at the cost of less protection for the company.
For the company. A cliff prevents early departures from taking equity. Graded vesting keeps later departures from taking more than they earned.
Termination. Vesting generally stops at termination, whether voluntary or not. Being let go just before a cliff is a known flashpoint; some offers address it explicitly.
Acceleration. Single-trigger acceleration vests some or all unvested equity on an acquisition. Double-trigger acceleration requires both an acquisition and termination without cause within a set period. Investors generally prefer double trigger.
In US retirement plans. The same terms describe how employer contributions to plans such as 401(k)s vest. Employee contributions are always fully vested. For employer matching contributions, federal rules cap cliff vesting at three years and graded vesting at six years, with graded schedules required to vest at least 20 percent per year starting after the second year.
This page is general information, not legal, tax, or investment advice. Terms and rules vary by jurisdiction and deal; get advice from counsel on a specific decision.
This is general information, not legal advice, and reading it does not create an attorney-client relationship. Talk to a qualified attorney about your specific situation.
| Dimension | Cliff vesting | Graded vesting |
|---|---|---|
| How ownership vests | All of a block on one date | Portions at regular intervals |
| Leaving early | Forfeit everything before the cliff | Keep what has vested so far |
| Protects | The company against short tenures | The company against over-earning later |
| Typical startup use | One-year cliff on a four-year grant | Monthly vesting after the cliff |
| US retirement plan maximum | Three years for employer matches | Six years, at least 20 percent per year after year two |
| Main risk for the recipient | Losing all equity just before the date | Slower accumulation of ownership |
Frequently asked questions
- What is the difference between cliff and graded vesting?
- Cliff vesting vests nothing until a set date and then vests a full block at once, so leaving before the date forfeits it all. Graded vesting vests portions at regular intervals, so leaving at any point keeps whatever has vested up to then.
- What is a normal vesting schedule at a startup?
- Four years with a one-year cliff. Nothing vests during the first year, 25 percent vests at the first anniversary, and the remaining 75 percent vests monthly over the following 36 months. Advisors, senior hires, and refresh grants often use variations of this schedule.
- What happens to unvested equity if I leave before the cliff?
- It is typically forfeited in full. Vesting generally stops at termination whether you resign or are let go, so departing even shortly before the cliff date usually means receiving no equity, unless the grant or offer letter provides otherwise. Check the grant for any exceptions.
- How do cliff and graded vesting work in a 401(k)?
- They apply to employer contributions, since employee contributions are always fully vested. For employer matching contributions, US federal rules limit cliff vesting to three years and graded vesting to six years, with at least 20 percent vesting per year after the second year.