5 ms·

I don't fully understand the cliff concept, if you could enlighten me? Thanks!

by fbliss 15y ago

nolite 15y ago
Google will help more than I can, but basically you get nothing equity-wise until you've stayed for a certain period of time... possibly a year. If you quit or get fired within this time, you also get nothing
metachris 15y ago
If your shares vest over three years with a one year cliff, this essentially means that you accumulate the shares over three years, but if you leave within the first year you get nothing.
bmelton 15y ago
If you look at your equity vesting as a line graph, then for the first year your options are worth nothing (this is before the cliff). The line is flat on the bottom of the graph. If you leave the company at this point, you get nothing, equity wise. On your one year anniversary, that graph jumps up from zero to something like 20% vested, which looks like a cliff on the line graph. If you leave the company at this point, you get something like 20% or 33% vesting (depending on the number years til fully vested -- 4 years + 1 year cliff usually works out to 20% a year). Beyond that, you basically step the graph up however many percent for each additional year.
- rdl 15y ago
  Just for clarity with standard terminology, "4 year with 1 year cliff" usually means 4 year vesting, with 25% vesting at the end of the first year. Thus, it's 0% for the first year, then 25% immediately at the beginning of the second year, and then 1/48th of the total grant for each of the next 36 months. 4/1 is basically the silicon valley standard. Usually you get the next increment on leaving (i.e. if you leave mid-month, you get the vest for that month), and often if you leave before a year (but after doing stuff, and amicably), you get some portion of the first 25% -- letting someone go after 11mo just to avoid the cliff is usually not done. If someone turns out to have been a bad hire after a month, it's more likely to just let him go and stick with the minimum terms of the contract (i.e. nothing). IMO if you can't trust the management of the company, you shouldn't work there anyway. You should have contractual terms which are mutually acceptable, but it's almost always possible for an employer to exceed or fail to meet those terms, with limited recourse for most employees.
  - bmelton 15y ago
    This is correct -- I have no idea where I got 20% from.
damoncali 15y ago
Google Brad Feld's term sheet series. Edit: http://www.feld.com/wp/archives/2005/05/term-sheet-vesting.html http://www.feld.com/wp/archives/2005/05/term-sheet-vesting.h...
heliodor 15y ago
In that case, I highly recommend you take hours and hours and hours and read and learn everything you can find about startup options, payouts, and historical stories of how people got screwed! Don't walk in there unprepared.
- fbliss 15y ago
  Well, that's why I asked the question in the first place, here, and I haven't been disappointed with the excellent advice and points from others.
DanielRibeiro 15y ago
Please read these topics on options/equity and the like: http://gigaom.com/2011/06/05/5-mistakes-you-cant-afford-to-make-with-stock-options/ http://gigaom.com/2011/06/05/5-mistakes-you-cant-afford-to-m... http://www.scribd.com/doc/55945011/An-Introduction-to-Stock-Options-for-the-Tech-Entrepreneur-or-Startup-Employee http://www.scribd.com/doc/55945011/An-Introduction-to-Stock-... It is important also for other hires that are offered equity/options, so you will probably have to explain it to other people.

I don't fully understand the cliff concept, if you could enlighten me? Thanks!

by fbliss 15y ago

I don't fully understand the cliff concept, if you could enlighten me? Thanks!

Google will help more than I can, but basically you get nothing equity-wise until you've stayed for a certain period of time... possibly a year. If you quit or get fired within this time, you also get nothing

metachris 15y ago

If your shares vest over three years with a one year cliff, this essentially means that you accumulate the shares over three years, but if you leave within the first year you get nothing.

bmelton 15y ago

If you look at your equity vesting as a line graph, then for the first year your options are worth nothing (this is before the cliff). The line is flat on the bottom of the graph. If you leave the company at this point, you get nothing, equity wise. On your one year anniversary, that graph jumps up from zero to something like 20% vested, which looks like a cliff on the line graph. If you leave the company at this point, you get something like 20% or 33% vesting (depending on the number years til fully vested -- 4 years + 1 year cliff usually works out to 20% a year). Beyond that, you basically step the graph up however many percent for each additional year.

rdl 15y ago
Just for clarity with standard terminology, "4 year with 1 year cliff" usually means 4 year vesting, with 25% vesting at the end of the first year. Thus, it's 0% for the first year, then 25% immediately at the beginning of the second year, and then 1/48th of the total grant for each of the next 36 months. 4/1 is basically the silicon valley standard. Usually you get the next increment on leaving (i.e. if you leave mid-month, you get the vest for that month), and often if you leave before a year (but after doing stuff, and amicably), you get some portion of the first 25% -- letting someone go after 11mo just to avoid the cliff is usually not done. If someone turns out to have been a bad hire after a month, it's more likely to just let him go and stick with the minimum terms of the contract (i.e. nothing). IMO if you can't trust the management of the company, you shouldn't work there anyway. You should have contractual terms which are mutually acceptable, but it's almost always possible for an employer to exceed or fail to meet those terms, with limited recourse for most employees.
- bmelton 15y ago
  This is correct -- I have no idea where I got 20% from.

damoncali 15y ago

Google Brad Feld's term sheet series. Edit: http://www.feld.com/wp/archives/2005/05/term-sheet-vesting.html http://www.feld.com/wp/archives/2005/05/term-sheet-vesting.h...

heliodor 15y ago

In that case, I highly recommend you take hours and hours and hours and read and learn everything you can find about startup options, payouts, and historical stories of how people got screwed! Don't walk in there unprepared.

fbliss 15y ago
Well, that's why I asked the question in the first place, here, and I haven't been disappointed with the excellent advice and points from others.

DanielRibeiro 15y ago

Please read these topics on options/equity and the like: http://gigaom.com/2011/06/05/5-mistakes-you-cant-afford-to-make-with-stock-options/ http://gigaom.com/2011/06/05/5-mistakes-you-cant-afford-to-m... http://www.scribd.com/doc/55945011/An-Introduction-to-Stock-Options-for-the-Tech-Entrepreneur-or-Startup-Employee http://www.scribd.com/doc/55945011/An-Introduction-to-Stock-... It is important also for other hires that are offered equity/options, so you will probably have to explain it to other people.