One of the ways founder can protect themselves is to include certain provisions to “accelerate” their vesting on the occurrence of certain events.

For example, if the startup is acquired, then your vesting could be accelerated so that you would own all (or a portion) your stock would become “vested” and you would own it outright.  This is commonly called “single-trigger” acceleration.

Another common example is the “Double-trigger” acceleration.  In this example, again assume that your startup is acquired.  However, your stock will not automatically accelerate upon the acquisition.  Instead, your stock will accelerate if you are terminated within a certain time after the acquisition — say 12 months. Hence the two triggers to the acceleration.

What about including a provision in your Founder’s Stock that your stock will automatically “vest” on obtaining financing from a VC?

It is certainly not “market” to have a founder or key employee’s stock or options vest on obtaining financing. So I wouldn’t include something like that, as most investors are going to negotiate that vesting back in as a condition of their investment. So don’t waste a “point of negotiation” on that point. However, I have seen vesting accelerated by say 25% on obtaining financing or funding, if obtaining the funding was a key role in their job description.

Normally, even if a start-up has that type of acceleration on funding, the investor or VC will require that all key employees sign up for additional vesting as a condition of the financing. That means even if you have stock that is fully vested at the time of financing, the VC would require that you agree to enter into a Stock Restriction Agreement for another 3 or 4 years.

However, what is somewhat more common is acceleration in the event of a change of control. You’ll sometimes see a single trigger acceleration (only on the change of control event) for the CEO or CFO; while most other management-level individuals will have a double-trigger (change of control and then termination within 12 months of the change of control).

If I were to advise you, I would say don’t fight for the acceleration on funding/financing, but consider the acceleration on a change of control. That way the employee will feel like he gets some protection but the VC or investors won’t think you are off base.

I’ve pasted a link to Noam Wasserman’s blog on vesting for founders. It helps provide some guidance on what is standard in this market.