Structuring Co-Founder Equity Vesting Schedule and Cliff Agreement Terms
Co-founder equity vesting schedules protect corporate capital by subjecting stock grants to temporal service cliffs and repurchase rights upon departure.
equity vesting acceleration
Meaning
A clause in an employment or stock agreement triggers the immediate vesting of unearned shares upon the occurrence of a specific event. This equity vesting acceleration removes the time-based restrictions that would otherwise apply to the grant. It commonly applies during a change of control or an involuntary termination.
Trigger Type
Single or double triggers define the conditions for the payout. A single trigger equity vesting acceleration occurs upon a sale of the company alone. A double trigger requires both a sale and the termination of the individual’s employment.
This distinction protects the acquiring company from a mass departure of talent immediately after a deal.
Proportional Granting
Partial speed-ups are sometimes used instead of a full release. The equity vesting acceleration might apply to only twelve months of future vesting. The entire remaining balance remains subject to the original terms.
This provides a bridge for the individual while keeping some equity at risk to encourage continued service. The calculation depends on the length of service completed before the event.
Acquisition Negotiation
Deal terms are heavily influenced by the presence of these clauses. If a large portion of the cap table is subject to equity vesting acceleration, the buyer must account for the sudden liquidity of the staff. This can lead to the creation of retention pools to replace the equity that has been accelerated.
The cost of these pools is often deducted from the final purchase price offered to the shareholders.