Vesting Schedule Explained: How You Earn Equity
You accepted a startup job. "100,000 options, 4-year vesting with 1-year cliff." What does that mean? When do you own the equity? What if you leave early? This guide explains vesting schedules so you can model your potential earnings.
How Vesting Schedules Work
STANDARD 4-YEAR VESTING: 100,000 options over 4 years = 25,000 per year = 2,083 per month. MONTHLY VESTING: You earn equity monthly (1/48th per month). ANNUAL VESTING: You earn equity annually (1/4 per year). VESTING CLIFF: Before cliff date, you own 0%. At cliff, you own cliff percentage (usually 25%). Then remaining equity vests gradually. EXAMPLE: "100k options, 4-year vesting, 1-year cliff, monthly after cliff" = (1) Month 1-11: 0% vested, 0 options owned. (2) Month 12 (1-year cliff): 25% vests, 25k options owned. (3) Months 13-48: 1/36 per month (75k ÷ 36 months = 2,083/month), vests gradually. (4) Month 48 (4 years): 100% vested, 100k options owned.
What Happens If You Leave
BEFORE CLIFF (e.g., month 11): You have 0 vested options. You lose 100k options. Ouch. THIS IS THE CLIFF RISK. AFTER CLIFF (e.g., month 20): You've vested 25k (cliff) + 8 months of post-cliff vesting = 25k + (8 × 2,083) = 41,664 options. Unvested 58,336 options are forfeited. AFTER 4 YEARS (month 48): You own 100% (100k options). If you leave or company doesn't exit, options might be worthless. But you own them.
Negotiating Vesting Terms
CLIFF DURATION: Ask for shorter cliff (6 months) instead of 1 year. EARLY VESTING: Ask for acceleration if company is acquired (single-trigger). EXTENDED EXERCISE WINDOW: Ask for longer window to buy options after leaving (usually 3 months, negotiate for 1-2 years). EQUITY REFRESH: Ask for refreshes as you stay (additional equity grant each year). These negotiations can significantly increase equity value if successful.
Frequently Asked Questions
If I leave after 2 years, do I keep vested equity?
Yes. Vested equity is yours (you own it). You keep it and can exercise (buy) at strike price. Unvested equity is forfeited.
What's a good vesting schedule?
Standard: 4 years with 1-year cliff. Better: 4 years with 6-month cliff. Best: 4 years with monthly vesting from day 1 (no cliff).
Can I exercise vested options after I leave?
Yes, but usually within 3 months (standard exercise window). If window is short and you can't afford to exercise, you might lose options. Negotiate longer exercise window before leaving.
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