Glossary
Cliff Period
The initial period (usually 1 year) where no equity vests — after which a larger chunk vests all at once.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
The cliff period is the minimum time someone must stay at a company before any of their equity vests. The standard cliff is 12 months. At the 12-month mark, a full year's worth of equity vests at once — typically 25% of the total grant. After the cliff, equity continues vesting monthly.
The cliff serves a practical purpose: it prevents someone from joining a startup, receiving equity, and leaving after a few months with a meaningful ownership stake. The cliff ensures that only people who commit to at least a year earn equity.
Cliffs apply to both employees receiving ESOPs and, increasingly, co-founders under founder vesting agreements. The cliff length can be negotiated — some companies use 6-month cliffs for senior hires, others extend to 18 months for early-stage hires with large grants.
India Context
In India, cliffs for ESOP grants are legally required to be at least 1 year under the Companies Act for listed companies. For private startups, there is no legal minimum, but 1 year is universal practice. A common Indian startup issue: founders who issue ESOPs to early employees without clear cliff documentation — which creates problems during due diligence when investors review option agreements.
Many Indian employees don't fully understand cliff mechanics, leading to departure disputes around the 11-month mark when no equity has vested.
Example
An engineer joins a startup with a 2% ESOP grant, 4-year vesting, 1-year cliff. At month 11, she resigns — she receives no equity. At month 12, if she were still employed, 0.5% (25% of 2%) would vest at once. From month 13 onward, 1/36th of the remaining 1.5% vests each month.
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