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What are they talking about? Double-trigger acceleration refers to acceleration based on the occurrence of two distinct events.
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Single-Trigger Acceleration Some founders and key executives negotiate into their equity arrangements that they will be entitled to some form of acceleration of the vesting on their equity upon the occurrence of a triggering event.
Typically, the triggering event is the sale of the company, but can also be an involuntary termination of employment.
Investors tend to dislike single-trigger acceleration upon a sale out of concern that it will turn off a potential acquirer. If the vesting scheme in place for those key members disappears at closing, then the acquirer will generally have to offer a more meaningful retention package to get trigger option who is this key employees to remain with the company post-acquisition.
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A larger post-closing retention plan either makes the transaction more expensive for an acquirer or is offset by reducing the purchase price, leaving less consideration for trigger option who is this stockholders generally, and accelerating options at closing of a sale also shifts consideration away from the investors and other stockholders to the employees with the special vesting acceleration.
Acquirers may also be concerned about the prospect of handing over life-changing amounts of cash to executives and then trying to formulate retention packages that are sufficient to actually get them to remain in their jobs through the sometimes difficult period of post-acquisition integration, a time when these employees may have new bosses and uncomfortable new levels of corporate bureaucracy.
Single-trigger acceleration based on involuntary termination is somewhat more unusual and introduces a different set of issues, in that vesting becomes less about the employee being effective enough to keep his or her job than about the financial consequences of letting him or her go. If the employee has a relatively large equity position, it can binary options optiontime it very difficult to replace or demote that employee without meaningful dilution to the remaining stockholders.
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Double-Trigger Acceleration Double-trigger acceleration, as the name implies, requires two events to trigger acceleration — most typically the sale of the company and the involuntary termination of the employee, usually within months after closing, and in some cases including a short pre-closing window 3 months or shorter to counter any preemptive termination by the company to avoid a payout.
Double-trigger acceleration has become very popular with early stage companies and aims to align the interests of the employees, the investors and potential acquirers by i providing a safety net for key employees, some of whom may be removed in the consolidation during post-closing integration — CFOs and GCs are particularly susceptible, ii reducing dilution from automatic acceleration, and iii easing the qualms of the acquirer by preserving the requirement of ongoing service to the company in order to vest.
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Fundamentally, a double trigger is designed to protect a startup employee from being terminated by an acquirer in connection with integration or as an economic decision where the value of the unvested equity into which the employee can vest is materially greater than the cost to the acquirer of finding a replacement for the employee. Often overlooked, however, is that in order for double-trigger acceleration to be meaningful, the option grant or equity award must actually be assumed or continued by the acquiror in the transaction.
This will not always be the case in a transaction — aquirors often have their own plans and ideas for incentivizing their employees. If an trigger option who is this option or equity award terminates in connection with a transaction, then technically, there will be no unvested options or awards to accelerate if the second trigger i.
All unvested stock options as of your last day of employment will be cancelled as of the close of business on your last day of employment.
The Takeaway Because option grants to startup company employees have become a ubiquitous method of aligning employee and company incentives and rewarding employees on the sale of the company, startups should consider what happens to unvested options, particularly those held by key employees, when the company sells.
While single-trigger vesting addresses this problem, it is a fairly blunt instrument that may spook potential buyers and investors. Double-trigger acceleration has grown increasingly popular among emerging companies as a nuanced approach to granting equity while balancing the various interests of employees, investors and potential acquirers alike.
To technically follow double-trigger acceleration, however, those underlying options need to be assumed by an acquirer, which does not always occur. Single-trigger acceleration remains relatively less common, and investors will often be more likely to push back against such provisions.