Acceleration is a mechanism in equity compensation that allows employees or founders to vest their stock options faster than the original schedule. It is most often triggered by significant events like a company acquisition. Acceleration ensures that key contributors are fairly compensated during major transitions and protects the value of their equity.
What is Acceleration?
Acceleration is a mechanism in equity compensation that allows employees and founders to receive their equity faster than the standard vesting schedule, typically in the event of a company acquisition. It serves as a critical protection method for startup talent, ensuring fair compensation during significant company transitions.
Vesting vs. Acceleration: What's the Difference?
While related, vesting and acceleration serve distinct purposes:
- Vesting is the process of earning equity over time (typically a four-year schedule with a one-year cliff)
- Acceleration protects employees by allowing faster equity receipt during specific events like acquisitions
Types of Acceleration: Single Trigger vs. Double Trigger
Single Trigger Acceleration
In single trigger acceleration, all unvested shares become fully vested upon a single event—typically a company acquisition. However, this approach is rarely used due to potential drawbacks for both employees and investors.
Double Trigger Acceleration
Double trigger acceleration has become the standard in startup equity. It requires two specific events:
- First trigger: Company acquisition
- Second trigger: Employee termination without cause
Why Venture Capitalists Prefer Double Trigger Acceleration
Venture capitalists strongly favor double trigger acceleration for several reasons:
- Reduces investment risk
- Keeps key employees motivated post-acquisition
- Maintains the potential value of the startup
- Aligns employee and investor interests
The Strategic Importance of Acceleration
Acceleration clauses serve multiple critical functions:
- Protect employees from losing potential equity
- Provide incentives for key talent to stay during transitions
- Create a more attractive compensation package
- Increase startup investability
Important Considerations
While acceleration can be beneficial, every startup's situation is unique. Factors to consider include:
- Company stage
- Funding status
- Individual employee roles
- Potential acquisition scenarios
Conclusion
Acceleration represents a nuanced but powerful tool in startup equity compensation. By understanding the differences between single and double trigger acceleration, founders and employees can better negotiate and structure their equity packages.
Our firm specializes in helping startups navigate these complex equity strategies. We can provide personalized guidance to ensure your compensation structure protects your interests and aligns with industry best practices.
Frequently Asked Questions
FAQs
What is the difference between single trigger and double trigger acceleration?
Single trigger accelerates vesting upon one event, such as an acquisition, while double trigger requires both an acquisition and a termination without cause.
Why do investors prefer double trigger acceleration?
It ensures employees remain motivated and engaged after an acquisition, protecting company value and reducing turnover risk.
Can acceleration apply to both founders and employees?
Yes. Founders, executives, and employees can all negotiate acceleration clauses, though terms often vary by role and seniority.
Is acceleration always included in startup equity agreements?
Not always. While acceleration is common, especially at the executive level, it must be specifically negotiated and documented in the equity agreement.
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