Double Trigger Acceleration
The prospect of an individual's stock or options vesting earlier than anticipated in the event of two different triggering events is known as "double-trigger acceleration." Your founder unvested stock may accelerate if you sell the company and are abruptly dismissed as a result.
The precise deadlines and triggers may vary depending on your contract. There are also single-trigger vesting clauses, where the vesting is accelerated by the occurrence of just one event. However, as a founder, you might wish to implement single-trigger vesting rules with caution. Although they might be advantageous to you, the provision might deter potential investors from investing in your company.
We must become familiar with accelerated vesting in order to fully comprehend the triggers. Accelerated vesting enables a worker to gain access to stock options or restricted company shares sooner by accelerating the vesting schedule.
This type of vesting schedule typically vests at a faster rate than the initial or regular schedule. As a result, the individual would benefit financially from the options or stocks much sooner. Additionally, if a corporation chooses to use the accelerated vesting approach, they would have to figure out a way to grant stock options earlier than would typically be the case.
In addition to providing high valued employees with a better offering, a business, particularly a startup, might use accelerated vesting to significantly increase its appeal to potential buyers.
For example, when a fledgling firm is acquired by another, the vesting schedule for the employees hasn't yet developed. Let's say the vesting period is five years long, but it has only been two.
The option plans may include a clause that, in the event of an acquisition by another company, the stocks will become fully vested. These personnel have an incentive to stick with the business throughout the purchase. To retain personnel through an IPO would be a comparable justification (IPO).
Double-trigger acceleration, as the name suggests, happens when two things happen at the same time to cause the acceleration. Typically, this includes the sale of the business and the involuntary termination of employment within 9 to 28 months of closing. The company's "causeless" termination of an employee's employment is included in the qualifying termination. However, it can also refer to an employee's resignation for a "good reason".
The double-trigger acceleration technique has gained a lot of traction in many early-stage companies as opposed to the single-trigger acceleration technique. In fact, this plan is not only backed by investors, but it also serves to shield the employee from being fired by the company's prospective buyer. The employee would be in a difficult position in this scenario without the acceleration capability. This is the key reason it is the alternative that both the business and the employees choose most frequently.