Single-Trigger vs. Double-Trigger Acceleration

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Single-Trigger vs. Double-Trigger Acceleration

Key Takeaways

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When navigating the complexities of equity compensation in startups and other early-stage companies, understanding the differences between single-trigger and double-trigger acceleration is crucial for founders, executives, and employees looking to gain a fulsome understanding of their equity positions within their company. These mechanisms are designed to specify how and when equity vests, typically regardless of vesting cliffs, and particularly in scenarios involving the sale or acquisition of the company.

Single-Trigger Acceleration

Under single-trigger acceleration, a single specified event—typically the sale or acquisition of the company—immediately accelerates the vesting schedule to which it applies. Accordingly, all or part of the equity that had previously been subject to vesting suddenly becomes fully vested. While single-trigger acceleration can be a boon to employees by providing immediate access to equity, it is not without drawbacks. Some view single-trigger acceleration as discouraging of long-term commitment to the company post-acquisition, as newly vested employees may elect to leave their employment upon having their equity become fully vested. Furthermore, potential acquirers may be discouraged by the additional costs imposed by the newly vested equity.

Double-Trigger Acceleration

Double-trigger acceleration is a bit more complex than single-trigger acceleration, requiring the occurrence of two separate events. Typically, these events are: a) the sale or acquisition of the company; and b) the subsequent or related termination of the employee’s employment with the company, usually either: a) by the company, without cause; or b) by the employee, with cause. (Note: the definition of “cause” is specific and is typically defined in various documents within the company’s governance framework. We may discuss this in a separate Insight.)

The double-trigger acceleration framework is overall more protective of the company’s interests, as it contains a mechanism to incentivize employee cooperation and continued service after a sale or acquisition of the company—a factor which makes the company a more valuable target. However, employees are not without protection, as typically dictated by the second trigger mechanism.

Choosing Between Single-Trigger and Double-Trigger Acceleration

The choice between these two types of acceleration should be guided by the specific needs of the company and its employees. Under the umbrella of company needs, however, the perspective of third parties is also often taken into account. In cases where the company and its management feel strongly about the need for future investment (e.g., venture capital), these stakeholders will generally contemplate how investors and other third parties will view a single-trigger vs. double-trigger acceleration framework. Typically, investors and similar parties will look more favorably upon companies with double-trigger acceleration, as having a mechanism to ensure key talent retention post-exit is generally seen as a valuable benefit. Companies and members of management are encouraged to seek the advice of competent legal counsel on these matters, typically as key perspectives vary from industry to industry and continue to evolve across the board.

Chatterjee Legal is able to assist on the matters discussed in this Insight. Please reach out via e-mail to insights@chatterjeelegal.com and a member of our team will be in touch with you shortly.

This Insight is a thought leadership production of Chatterjee Legal, P.C. and is presented subject to certain disclaimers, accessible here.

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