Accelerate your vesting upon termination by Babak Nivi

Founders accept vesting schedules to prove their commitment to their company. Accelerating vesting upon termination proves the company’s and investors’ commitment to the founder. If there are co-founders it can become a difficult decision between leaving shares behind upon termination and risking a disinvested co-founder trying to get fired and enjoy accelerated vesting

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Accelerated vesting, good cause termination, good reason resignation, vesting schedules

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How can founders prevent termination from investors?

  • Summary bullet points
  • Founders can be terminated by their company in a number of cases, and some people stand to benefit. Upon termination, unvested shares are usually lost by the founder
  • A founder might be terminated because of repeated disagreements with a new CEO, incompetence, because they are damaging the startup, etc.
  • Founders should include provisions that allow for accelerated vesting of a large portion of their shares upon unjust termination or resignation “for good reason”
    • “Good cause” implies misconduct, negligence, fraud, contractual breaches, etc.
    • “Good reason” for resignations includes position change, salary cut or a drastic change in location
    • Acceleration should not be related to changes in company control/ownership
  • This can be motivated with the fact that founders contribute proportionately more to the business early on but their shares vest evenly throughout a number of years
    • Vesting schedules demonstrate founder commitment to the company
    • Accelerated vesting at termination demonstrates investor commitment to the founder
  • A board reflective of % ownership can help founders not being unjustly terminated
  • With co-founders, it becomes harder because if one decides to leave the company they can just misbehave and get the investors to fire them without good cause
    • There is a trade-off between leaving shares on the table and expected value of costs caused by co-founders who want to leave
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