Vest Early. Vest Often.

Silicon Valley Should Eliminate the 1 Year Cliff

July 4, 2024 โ€” I lived in San Francisco and Seattle in the 2000's and 2010's, and if I told you the names of every startup I almost joined as employee <5, you'd probably think I was lying.

But I declined them all for the same reason: the 1 year vesting cliff.

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What's a cliff?

If a startup gives you 1% of the company in the form of stock options, the standard is to vest 0.25% a year for 4 years with a 1 year cliff. This means you get nothing until after the first year.

If you have to leave or they fire you after 11 months you own zero.

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Cliffs are a bad deal for everyone and should be eliminated.

It sucks for the employees. It's so much more fun to do your best work immediately and never think about cliffs.

It sucks for the startups. They miss out on bringing in outlier talent who may stay for a decade, but only want to guarantee a few months.

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Back in 2008-2018, I was young and 1 year seemed like an eternity-what if I wanted to travel in 10 months, or someone close to me got sick, or I had my own startup idea?

I also didn't want to have any incentive to sit on my best work until my shares started vesting. I wanted to give my teams my absolute best from day 1.

Historically I knew I would make the most impact at a startup in months 3 - 12, so why should I be rewarded less than the person who does just enough to last until month 12?

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Now that I'm an angel investor and not subject to cliffs, I can say with much higher certainty: cliffs are dumb and should be eliminated.

Four year vesting schedules are fine, but employees should vest daily, starting on day 1.

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But what if we hire someone and they don't last even 1 month?

This should be very rare, but even if it happen, it's not a big deal.

They get 2% of their stock options. Far less than a single percent of your company. So what.

Everyone should be happier without the cliff.

Presumably you've hired people who are good people, and so even though it wasn't a right fit, you think the world will be a better place if that person someday gets a little extra money from their stock.

They also will forever be a booster of your business even though they are no longer an employee, because they now have the incentives to be.

But what about all the paperwork, accounting, and legal trouble of daily vesting?

It is basic arithmetic. The software to implement this is dead simple. And I've now seen it done with one of the startups I invested in (and it works great).

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That's all I have to say about cliffs. Now, I've got to get back to building my own projects.

But if your startups wants to hire me and pay me in options, I am available. (For a month or two ;) )

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