Acceleration clause

Also known as an acceleration covenant by some people who are probably witches, acceleration clauses are generally bad news if you’ve heard of them in regards mortgages and banks. But when it comes to startups, the acceleration clause can be a handy tool. Let’s explore that, shall we?

Usually offered to people at the executive level only, startup acceleration clauses are commonly found in employee contracts, stock option agreements and other similarly fancy financial documents. They are all about the vesting of assets, such as company stock and retirement plans. It’s meant to protect your executives and the employees you really like in the event of a significant change in the company that would affect their stock option vesting schedule. This can be anything from a wrongful firing by the big mean new boss or a sale of the business that would change the terms of the initial plan. The sale or merger thing is the most common “single trigger” reason you’d see an acceleration clause go into effect.

So if your company has a 3 year schedule for you to be fully-vested in the company but the company is sold in just 2 years, having an acceleration clause in effect could mean that you’d still be fully invested with your stock options even though the full term of the agreement has not taken place yet, through no fault of your own.

Sometimes, a double trigger acceleration is in effect when two events happen at the same time. Your company is sold and then the big mean new boss comes in and fires everyone for pretty much no reason besides a power trip. It can be offered as part of a severance package as well if it wasn’t in the initial terms of the employment contract.

 

Example:

Thank goodness for that acceleration clause or I would have been choosing which one of my kids gets to go to college now that my company is sold.

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