What is Vesting?
The Complete Guide for Startup Employees & Founders
Vesting determines when you actually own your equity. Learn how schedules work, what a cliff means, how acceleration clauses protect you, and tax strategies like early exercise and the 83(b) election.
What is vesting?
Vesting is the process by which you earn ownership of your equity over time. When a company grants you stock options or restricted stock, you do not own that equity immediately — you earn it gradually through continued employment.
Vesting protects both employees and companies. It incentivizes long-term commitment: you earn more equity the longer you stay, and the company is not obligated to hand over equity to someone who leaves after a month.
The most common startup vesting schedule is 4 years with a 1-year cliff. At the 1-year mark, 25% of your grant vests at once. The remaining 75% vests monthly over the following 36 months.
How a 4-year / 1-year cliff schedule works
Why the cliff exists
Cliffs protect companies from granting equity to employees who leave very early. They also set a minimum commitment threshold — if the role is not a good fit, both sides know within a year.
What happens when you leave before the cliff?
- You forfeit all unvested equity
- No shares vest — the cliff resets
- You keep any already-vested shares
- Leaving one day before the cliff = same as leaving day one
The cliff explained
A vesting cliff is a waiting period at the start of your vesting schedule during which no equity vests. The cliff date is the earliest moment any equity can vest.
The standard 1-year cliff means: if you leave before your 12-month anniversary, you receive no equity at all. On your 12-month anniversary, 25% of your total grant vests immediately as a lump sum.
Some companies negotiate cliff length. Founders sometimes see 6-month cliffs for early team members. Cliffs longer than 1 year are unusual and a red flag in offers.
Monthly vs quarterly vesting
After the cliff, equity can vest on different cadences. Monthly is most common at modern startups.
Monthly vesting
Most common- Equity vests each calendar month
- More frequent milestones — lower risk if you leave mid-year
- On a 4-year schedule: ~2.08% vests per month post-cliff
- Preferred by employees — you earn equity every month
Quarterly vesting
Less common- Equity vests every 3 months after the cliff
- Larger batches vest at once — higher risk if you leave mid-quarter
- On a 4-year schedule: ~6.25% vests per quarter post-cliff
- More common at larger companies or in older grant agreements
Acceleration clauses: single trigger vs double trigger
Acceleration clauses let unvested equity vest immediately when certain events occur — most commonly an acquisition.
Single trigger acceleration
All unvested equity vests immediately upon a single event — usually the acquisition of the company.
Advantages
- +Maximum employee protection
- +Full vesting regardless of post-acquisition role
Considerations
- −Acquirers dislike it — they lose retention leverage
- −Harder to negotiate for employees
Double trigger acceleration
Two events must occur: (1) a company acquisition, AND (2) you are terminated or constructively dismissed within 12–24 months.
Advantages
- +More common in VC-backed companies
- +Protects against "acqui-hire then fire" scenarios
Considerations
- −You must actually be terminated to receive the benefit
- −Staying voluntarily does not trigger acceleration
Early exercise & the 83(b) election
A powerful tax strategy for early-stage employees — but it has a strict 30-day deadline.
What is early exercise?
Early exercise means exercising your stock options before they vest. Not all grants allow it — check your option agreement for "early exercise" language.
When you early exercise, you buy unvested shares subject to a repurchase right held by the company. As you vest, the company loses its right to repurchase those shares.
The benefit: your long-term capital gains holding period starts at exercise, not at vesting. At a company with a low 409A valuation (common at seed stage), the tax you pay upfront is minimal.
The 83(b) election
An 83(b) election is a tax filing that tells the IRS: "I want to be taxed on this equity now, at today's value, rather than when it vests."
Without an 83(b), you owe income tax each time restricted stock vests — at whatever the stock is worth at that future date (which could be much higher).
With an 83(b), you pay income tax once, upfront, at the current (usually low) value. All future appreciation is taxed as capital gains — which is taxed at a lower rate if held over 1 year.
30-day deadline — strict
An 83(b) election must be filed with the IRS within 30 days of the grant date or early exercise. There are no extensions. Miss the window and you lose this option permanently.
Related equity guides
What is Equity?
Types of equity at startups — stock, options, RSAs, RSUs explained.
ISO Stock Options
ISO vs NSO, exercise strategies, AMT, and tax planning.
RSA vs RSU
Restricted stock awards vs restricted stock units — key differences.
SAFE Notes
How SAFEs work, types of SAFEs, and how they convert to equity.
409A Valuation
Why startups need a 409A and how much it costs.
LP Portal
Investor reporting tools for fund managers.
Vesting — frequently asked questions
What does vesting mean for stock options?
Vesting means earning ownership of your equity over time. Before your options vest, you cannot exercise them. A typical startup vesting schedule is 4 years with a 1-year cliff — meaning no options vest in the first year, then 25% vest at month 12, and the remainder vest monthly or quarterly over the following 3 years.
What is a vesting cliff?
A vesting cliff is a waiting period before any equity vests. The most common cliff is 1 year. If you leave before the cliff, you receive no equity. At the cliff date, the equity that would have vested over that period vests all at once.
What is double trigger acceleration?
Double trigger acceleration requires two events: (1) a company acquisition, and (2) you being terminated or leaving for good reason within a set period after. Single trigger acceleration requires only the acquisition itself.
What is an 83(b) election?
An 83(b) election lets you pay income tax on restricted stock or early-exercised options at the current (lower) fair market value instead of at vesting. It must be filed with the IRS within 30 days of the grant or early exercise.
What is early exercise?
Early exercise lets you exercise stock options before they vest. Combined with an 83(b) election, it starts your long-term capital gains holding period earlier and can significantly reduce your tax bill if the company's stock appreciates.
How is monthly vesting different from quarterly vesting?
Monthly vesting means equity vests each month after the cliff. Quarterly vesting means it vests every 3 months. Monthly vesting is more common and gives employees more flexibility. Both are equally valid — check your grant agreement.
Track Your Vesting on OpenCap
See exactly how much equity you have vested, when your next tranche vests, and model scenarios — all in one place.