Cliff

A cliff is the minimum vesting period in an equity incentive plan before any rights are earned: during the cliff, the employee or founder holds no vested rights regardless of tenure, and no shares or options vest before it expires. At the cliff date, a lump sum of rights vests immediately (typically 25% of the total), with the remainder vesting monthly over the residual period. In fundraising and management package structures, a one-year cliff is the market standard for founders and key employees in venture-backed companies; beyond the cliff, vesting is typically linear over a total period of 3-4 years. The mechanism protects investors and remaining co-founders against early departures (less than 12 months) that would otherwise leave unvested shares with a departed person, and aligns incentives over the medium term.

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Example: a CEO receives 100,000 BSPCEs vesting over 4 years with a one-year cliff. If she leaves after 9 months, she receives nothing. If she stays 13 months, she immediately earns 25% (25,000 BSPCEs) upon the cliff, with the remaining 75,000 vesting monthly over the following 36 months.

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For a co-founder holding 400,000 shares on a 4-year schedule with a 1-year cliff: at month 10, 0 shares are vested and the company can repurchase all 400,000 shares at nominal value; at month 12, 100,000 shares (25%) vest immediately, then 8,333 shares vest monthly for 36 more months; at month 30, 100,000 + (18 × 8,333) = 250,000 shares are vested, 62.5% of the total, reflecting 2.5 years of the 4-year commitment.

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Hectelion structures cliff and vesting mechanisms in shareholders' agreements for fundraising and LBO management packages, balancing investor protection with fair founder treatment and maximising long-term alignment between founders and investors.