A common mistake when founding a startup is granting 100% of the equity to co-founders upfront on day one. For example, if two co-founders split equity 50/50 and one departs after 3 months, they retain 50% of the venture. To prevent this, standard startup practice utilizes “Vesting” and “Cliff” structures.
For guidance on structuring shareholder ownership, read our article: Cap table and valuation: Startup valuation and equity distribution
1. Standard vesting and cliff framework
The global venture standard is a 4-year vesting schedule with a 1-year cliff.
Under this structure:
- The 1-year cliff (Months 1–12): No equity vests officially during the first 12 months. This serves as a trial commitment period.
- Year 1 cliff milestone: Upon reaching month 12, 25% of the total allocated equity vests immediately.
- Monthly vesting: Over the remaining 36 months, the remaining 75% vests incrementally on a monthly basis (1/48 per month).
Y Combinator requires all portfolio startups to execute a standard 4-year vesting agreement with a 1-year cliff among co-founders upon entering the program.
Implementing vesting and cliff provisions protects the venture and aligns long-term co-founder commitment.
