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inspiration
Guides
Insights
Management Rights Letter: Granting Institutional Investors Oversight Access
When startups take money from venture capital funds subject to ERISA or similar regulations, those funds need a special document: the Management Rights Letter (MRL). This short but powerful agreement ensures the investor has sufficient rights to “manage” their investment, helping them comply with legal requirements.
Indemnification Agreement: Personal Protection for Startup Directors and Officers
When startup leaders make tough calls - hiring, spending, pivoting - they expose themselves to personal liability. The Indemnification Agreement serves as a legal shield, protecting directors and officers against lawsuits, claims, and costs incurred while serving the company.
ROFR and Co-Sale Agreement: Managing Share Transfers While Preserving Cap Table Control
In venture-backed startups, control of the cap table is critical. The Right of First Refusal and Co-Sale Agreement (ROFR/Co-Sale) helps founders and investors maintain that control by regulating how shares are transferred - particularly when founders, early employees, or other major holders want to sell.
Voting Agreement: Aligning Shareholder Power in Key Company Decisions
While founders often assume they’ll control their company post-funding, the Voting Agreement tells a more nuanced story. This document outlines how shareholders agree to vote their shares on critical company matters, including board elections and future financing approvals.
FAQs
Open allIs 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.
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.
Why do investors prefer double trigger acceleration for founder and key employee equity compensation?
It ensures employees remain motivated and engaged after an acquisition, protecting company value and reducing turnover risk.
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.
Do vesting schedules apply only to employees?
No. Vesting schedules can also apply to contractors, advisors, and executives who receive equity compensation under the company’s equity incentive plan.
Can vesting schedules be customized?
Yes. While time-based vesting is standard, many startups use performance-based or hybrid structures to align equity with specific goals or milestones.
Why do companies use a vesting cliff?
A cliff ensures employees demonstrate commitment and cultural fit before receiving ownership. It also protects the company from granting equity to short-term hires.
What is the most common vesting schedule for startups?
The standard structure is a four-year schedule with a one-year cliff, followed by monthly or quarterly vesting for the remaining equity.
When should I create an option pool?
Ideally at incorporation. Waiting too long can create dilution challenges and complicate negotiations with investors.
What types of equity can be granted under an EIP?
An EIP can include stock options, restricted stock, RSUs, and other equity-based awards, giving flexibility to tailor compensation.
Do all startups need an equity incentive plan?
Yes. Even small teams benefit from setting aside equity early. Without one, you risk complications in hiring, fundraising, and future compliance.
How large should my option pool be?
Most early-stage startups set aside 10–20% of total equity, but the right size depends on your growth plan, hiring needs, and investor input.