Why Does a Vesting Schedule Use a One-Year Cliff?

A vesting schedule is the contract clock on which founders and employees earn startup equity or the right to exercise options. Y Combinator calls four years with a one-year cliff typical. Stripe Atlas uses that pairing as the default for founder stock.

That contract is not IRC §411 401(k) vesting, which the IRS does not apply to option plans.

Leave before month 12 and you keep nothing. Stay through month 48 and the full grant is yours.

Key Takeaways

• A vesting schedule is a private contract, not the IRS rule that governs 401(k) employer money.
• US venture-backed companies default to four years with a one-year cliff, then monthly vesting.
• After the cliff, Orrick vests 1/48 of the original grant each month, not 1/36 of the leftover 75%.
• Founders reverse-vest restricted stock. Employees forfeit unvested options back into the plan.
• Double-trigger acceleration only pays if the buyer assumes the award. Read the assumption clause before you treat it as protection.

What Is a Vesting Schedule?

A vesting schedule is the timeline on which you gain full ownership of equity, or the right to exercise options. Until a slice vests, the company can take it back.

Carta puts it as the timeline that determines when an employee gains full ownership of their equity. Orrick splits the mechanic: for stock, vesting is the company's right to repurchase unvested shares; for options, it is your right to exercise.

The economics are the same either way. Wilson Sonsini names two pipes.

Forward vesting hands you shares or rights over time. Reverse vesting hands you the shares on day one, then lets the company reclaim what is still unvested if you leave.

This page is general information, not legal or tax advice.

Startup Equity vs 401(k) Vesting

Google mixes two legal objects under the same query. IRC §411 sets statutory maxima for employer contributions to a qualified retirement plan: a 3-year cliff or a 6-year graded schedule. Employee deferrals are already 100% vested.

A 401(k) cliff is 0%, then 100% on a date. A startup cliff is 0%, then a 25% catch-up at month 12, then monthly slices. The IRS does not require four years or a one-year cliff for stock options.

If you searched this term after a 401(k) statement, stop here and read the IRS page. The rest of this article is startup equity.

How a Vesting Schedule Works

Four years with a one-year cliff is the US default for employees and founders. Stripe Atlas calls that pairing the standard among tech companies.

When a cliff is used, Carta puts the vast majority (at least 95%) at one year. Nearly 70% of employee grants have a cliff at all.

The Grant

You receive restricted common stock (founders) or options (employees) on a start date. Nothing in that grant is yours until it vests, unless the documents already vest a slice.

Cooley GO prices founder common at a nominal $0.0001 per share in the default setup. Employees receive a right to buy, not the shares themselves.

The One-Year Cliff

For 11 months you vest 0%. On the first anniversary, 25% vests in one catch-up. Y Combinator states the consequence in one line: leave within the first year and you walk away with nothing.

Orrick uses the cliff to stop a three-month misfit from keeping a permanent line on the cap table. For Cooley, the point is stopping a departed cofounder from taking a free ride on the people who stayed.

1/48 of the Original Grant

After the cliff, the remaining 75% does not vest as "1/36 of what is left." Orrick's FAQ vests 1/48th of the total shares originally subject to vesting every month. You are fully vested at month 48.

On a 48,000-share grant, 1/48 of the original is 1,000 shares a month:

Leave at month 10 and you keep 0. Leave at month 14 and you keep 14,000. That is 12,000 at the cliff plus two months of 1,000.

Orrick also notes a 4-year straight-line variant: 1/48 each month with no cliff. Founders sometimes get credit for pre-incorporation work, which shifts the start date rather than the fraction.

Acceleration as an Add-On

Acceleration is extra, layered on the 4-year clock. Orrick treats it as an add-on for founders, key executives, and some early hires.

Single-trigger means one event, usually a sale. Cooley GO says that form is not the norm, even for founders, and is very unusual for rank-and-file employees.

Stripe Atlas is blunter: single-trigger is not standard in Silicon Valley. VCs there generally prefer double-trigger.

Double-trigger is a sale plus a qualifying termination inside a post-close window (without cause, sometimes resignation for good reason). Cooley GO puts that window at 9 to 18 months. Some grants add a short pre-close period so the company cannot fire people to dodge the payout.

WilmerHale describes a lighter sale-only variant: sometimes a small percentage, such as 25% of the shares, accelerates on a sale. Do not confuse this clause with public-company "double-trigger RSUs," where time plus liquidity gates settlement. Same phrase, different contract.

Types of Vesting Schedules

The same four-year calendar hides two different contracts. Time-based vesting is the startup default. Milestone and hybrid schedules exist, but Wilson Sonsini flags them as hard to measure at termination.

Founder Reverse Vesting

Founders receive restricted common stock at formation, often for nominal cash plus IP assignment. The company holds a repurchase right on unvested shares.

Carta describes that buyback as typically at cost. Cooley GO writes it as the lower of cost or then fair market value. Market documents use both phrasings.

You are a stockholder from day one, including on unvested shares. That is why formation-time section 83(b) elections show up in founder paperwork. The mechanic belongs in the stock purchase agreement, not an employee option plan.

Incoming investors will impose a schedule if you do not. Cooley GO tells founders to put a reasonable scheme in place before a priced round, or the new money will propose something more onerous. That fight lands during funding stages when the first institutional check shows up.

Wilson Sonsini notes that US NVCA-style deals stay on time-based vesting. Do not paste UK good-leaver / bad-leaver repurchase prices into a US grant.

Employee Option Vesting

The employee vehicle is ISOs or NSOs, then RSUs at later-stage companies. Unvested options cancel back into the pool. You do not vote those shares, and you do not own them.

Carta is the right place to see how that clock is administered, including on equity software and cap tables. The legal terms still live in the plan and your grant notice.

"Vested" on an option grant means you have a right to buy. It does not mean shares sit in your account. Miss the post-termination exercise window and that right expires, which is a second cliff the four-year schedule does not show.

Advisor Vesting

Orrick puts advisor grants on a shorter clock, about two years, with the cliff optional. Single-trigger change-of-control is more defensible here because advisors are not expected to stay after a sale.

Hand the sizing, FAST-style formulas, and tax detail to advisory shares. Do not copy an employee 4/1 template onto an advisor grant.

Benefits of a Vesting Schedule

Dead Equity Stays Off the Cap Table

The cliff exists because handshake splits without a clock produce owners who stopped working. On r/SaaS, that handshake-and-walk pattern is the recurring horror story.

Orrick's three-month misfit and Cooley's free-rider are the same problem: a line on the cap table that no longer matches labor. The schedule is cap-table insurance.

Unvested Equity Is a Retention Device

After FAS 123-R led 723 firms to drop option vesting periods, voluntary CEO departure rose from 5% to 21% in a Review of Financial Studies 2018 study.

Those were public-company CEOs, not seed cofounders. The direction still holds: unvested paper keeps people in the seat.

Investors Already Know This Clock

Wilson Sonsini treats a time-based schedule on founder shares as the US NVCA-style market term. You are matching the term the next round already expects.

Stripe Atlas ships 4/1 as the default for founder stock. Fighting that pairing spends lawyer time on a point most US investors will re-insert.

Challenges and Limitations

Double-Trigger Only Works If the Buyer Assumes the Award

Cooley GO flags the clause founders miss. If unvested options terminate at closing, the second trigger has nothing left to accelerate.

A double-trigger grant that is not assumed is a paper tiger. Read whether the acquirer must assume or continue the award. If the documents are silent, do not count the unvested remainder as deal proceeds.

Investor pushback on single-trigger is the other side of the same coin. An acquirer that inherits a fully vested team has lost the retention hook and must buy a new package, which raises deal cost or comes out of purchase price.

Vested Options Are Not Shares

Employee "vested equity" is often a check you have to write. On r/startups, the recurring confusion is treating vested options as shares already in your account.

Founders on restricted stock already hold the shares (subject to repurchase). Employees hold a call option.

If you leave, unvested founder shares are repurchaseable and unvested options cancel. Vested founder shares stay yours unless you negotiated a rare for-cause buyback. Vested options still need exercise inside the post-termination window.

A One-Year Founder Cliff Is Still the Standard

Play Ventures argued in July 2025 that a one-year founder cliff is now too short. They cite median time from first funding to IPO at 7.5 years, versus 5.6 to IPO and 4.6 to acquisition in 2005. They estimate 15%+ founder departures after year one and used a two-year founder cliff.

Orrick, Cooley, Carta, Stripe Atlas, and Y Combinator still state one year. Treat the two-year cliff as a named GP dissent, not a replacement default.

The 83(b) Clock Is 30 Days

Unvested restricted stock is taxed as ordinary compensation as it vests unless you elect under IRC §83(b). The election "shall be made not later than 30 days after the date of such transfer." 26 CFR § 1.83-2(f) says you may not revoke it except with the Commissioner's consent.

IRS Form 15620 (Rev. 4-2025) is the current vehicle.

Fred Wilson walked a 100,000-share grant at $0.10. File and you tax $10,000 now. Skip it and a $1.00 FMV at the cliff taxes $25,000 at year one, with 75% still unvested.

This is not tax advice. It is a 30-day statute with no late-filing relief in the sources above.

RSUs are not property under IRC §83 at grant, so an 83(b) election cannot be made on them. Early-exercised options can.