Unlocking Your Golden Handcuffs: How Common is Accelerated Vesting on Change of Control?

“I’m negotiating my equity-compensation package. How frequently do people get accelerated vesting on change of control?”

In private ventures, vesting of equity stakes is the major form of golden handcuffs (see posts here, here, and here) used to keep executives at their ventures. However, other terms, such as accelerated vesting on change of control (AVCoC), can shorten those vesting periods. (See Brad Feld’s description of AVCoC in the middle of this post, or the VentureHacks overview here.)

I recently got an email from a serial entrepreneur who has been brought on as the head of finance and operations in a mobile-services start-up. One of his questions was: How often do new-venture executives get AVCoC? If it’s not common for them to get it, he wouldn’t push for it and would focus his negotiating leverage on another term, but if it’s common, he wanted to push hard for it. (He felt that the start-up might be the subject of M&A activity in the future, and had already experienced working for a large company after a prior venture of his had been acquired.)

I decided to dive into our fresh CompStudy data on equity terms to examine how common AVCoC is within new-venture management teams. I took a look at three levels of data: What is the overall percentage of executives receiving AVCoC? Does the percentage differ by level in the organization (e.g., CEO vs. other C-level executives vs. VP-level executives)? And has the percentage been changing over the last few years?

For these analyses, I combined our 2005, 2006, 2007, and 2008 IT datasets, which gave me a total of 6,053 executives from 1,202 private ventures.

Overall, the percentage of executives receiving AVCoC was 65.5%. However, as shown in the chart below, the percentage varied from a high of 76.4% for CEOs down to 46.3% for the Head of Human Resources. (I only show the positions for which I had at least 100 data points.)

Over time, the percentage has been steadily increasing. As shown below, in 2005, 62.4% of executives received AVCoC, but by 2008, it had steadily increased to 68.9%. This increase was relatively consistent across the positions in the chart above.


  • When you were in a similar position, how much did you push (or not push) to receive AVCoC? Why?
  • There are good reasons why many boards and investors do not want to give executives AVCoC (some of which are covered towards the bottom of Brad Feld’s post). In your experience, what arguments are most and least effective for getting boards to give it?
  • Did the strength of those arguments differ by whether the person was a founder vs. a non-founder? By the executive’s position (e.g., C-level vs. VP-level person, as per the first chart above) or other characteristics?
  • Any thoughts on the increase in AVCoC from 2005-2008 (as per the second chart above)?
  1. These data jive with my personal observations (i.e. about 2/3 of executives have some sort of non-standard acceleration of vesting). As a side note, most startups I’ve seen have some sort of acceleration built into the option plan so in those cases all employees have some acceleration (so I wonder if the data includes these “standard” terms or just the negotiated terms).One “negotiation” strategy that I’ve seen work well for founders is “facts on the ground,” i.e. set up vesting in the original founders’ agreements which are likely to be accepted by your eventual investors (presuming the terms are reasonable).For executives joining after VC funding, linking negotiations of vesting to severance can also help reach a deal. Finally, not to get into too much detail acceleration clauses are not all created equal. For example some have basic carve-outs for “cause” (like not showing up for work or “moral turpitude”) whereas others have looser definitions of cause (like “unable to satisfactorily perform duties”).Often these clauses are triggered when everyone is not on friendly terms so getting a clear definition (and ideally a third party arbiter) is key.

  2. Thanks for the thoughts, Furqan! Three follow-up points:1. This post focuses on the individual level, but I also analyzed AVCoC at the <>team<> level, which is the focus of your first (“side note”) point. At the team level, <>36% of the teams (429 ventures) had a “mixed” approach to AVCoC<>, wherein some executives had AVCoC and some did not. In those ventures, executives would seem to have been negotiating AVCoC on a case-by-case basis, in the absence of a consistent plan adopted across the team/venture. Of the other ventures, 47% (561 ventures) had AVCoC across all of the executives in the survey. Those <>47% might include some ventures that adopted a consistent plan and others where the AVCoC’s were put in place on a case-by-case basis.<> Finally, 17% did not have a single executive with AVCoC (yet?).2. Regarding your point about linkages between vesting terms, that’s borne out in the quantitative analyses described in < HREF="http://founderresearch.blogspot.com/2006/06/golden-handcuffs-and-vesting-early.html" REL="nofollow">one of my initial Golden Handcuffs posts<>, which showed tradeoffs across vesting terms, and between vesting and severance.3. I agree that it would be great to get the next level of detail regarding the AVCoC — e.g., definitions of “cause,” or whether single- vs. double-trigger AVCoC. For now, we don’t ask down to that level of detail (instead, we use our “survey real-estate” on whether each executive has performance-based vesting, some severance terms, etc.), but if it’s compelling enough to get deeper data, it might be possible in the future.

  3. The data above is consistent with what I see as well. However, as you point out Noam, it would be interesting to further disaggregate the data to determine what percentage of the 2/3 have single-trigger versus double trigger. I have not seen a rise in single-trigger in the deals I’ve been involved with but would welcome the chance to see what is happening across the board. The negotiation of single versus double trigger by founders/management and their VC backers is always interesting and at times heated. From a VC perspective, the granting of a single-trigger can be quite expensive. Acquirors will often use the presence of single-trigger clauses as a reason to reduce the valuation they are willing to pay (whether or not they are actually worried about single-triggers reducing motivation of the acquired team). So at some point, giving some form of AVCoC becomes a risk-return calculation for the investors.Given the state of the current economy, I’ve seen the negotiation of “management carveouts”–a tangential concept to AVCoC– become more prevelant at the outset of a deal. Founders/management worry that with lower valuations (due to poor markets), the amount left-over for common shareholders/option holders once the preferred shareholders take their liquidation preference will be minimal. As such, a management carveout of the purchase price (for instance, 10% of the total proceeds) will ensure that management gets rewarded for their hard work as opposed to being left with nothing–even if they have a single trigger.

  4. agree. difference between single and double trigger is significant. would love to see those stats if you have them.

  5. we always insist on double trigger on change of control — except occasionally for the CEO and CFO. CFO we know is gonzo on acquisition, and so we will agree to single trigger vest if pushed, though we point out he’ll probably be fired and get it anyway. CEO has generally brought us to the promised land if we’re selling, so there too we can be willing to give on the double trigger.everyone else has gets double trigger. the acquirer is buying the people in addition to the technology and expect them to stay on for a year or two after acquisition. if you vest everyone, it will come out of the purchase price.

  6. Amir is right. You shouldn’t fully vest people on change of control. If you do fully vest people on change of control the acquiring company will see that and then take money our of your founder share to use to compensate employees to stay on post acquisition. At worst they may decide they won’t be able to get employees to stay so the deal will get called. Also, if you have only some employees that fully vest on change of control they could hold an acquisition deal hostage.In my experience setting a vesting trigger to x% of options on change of control makes sense so employees get to vest a big chunk of their equity on change of control but not all of it.As for my personal situation: I didn’t push as much as I should have on vesting although my vesting plan was solid. What I would really focus on is getting more equity assuming the vesting schedule is reasonable.

  7. I am not surprised by the data, but I would bet that the vast majority of AVCoC provisions are of the double trigger variety. The devil is definitely in the details here. Beyond the difference between single and double trigger, you can have further variations on double trigger. In my case, we pushed hard for single trigger, but settled for a double trigger with a twist or two to make it more attractive for the employee.Vesting may seem like less of an issue for startups since the relatively long time until sale will likely allow for considerable or complete vesting. However, I have seen situations where vesting provisions put in place when the company was early stage make recruiting more difficult down the road. Someone who is taking a paycut to join a late stage private company for equity upside is not going to have the same single trigger AVCoC provision he had as an employee of a public company? Riiiiight. Of course if you give it to the most recent employees, those of longer duration want it too (at least those who are aware of it). Perhaps FASB 123R will eliminate this problem by eliminating public company options altogether.The argument VCs make about AVCoC impacting the valuation they receive may or may not be relevant. If they are proposing a participating preferred or a multiple on the liquidation preference, that argument carries (considerably) less water. The best one is when a founder has made some real progress by bootstrapping a company for a good period of time and then a VC proposes that the founder’s hard-earned common equity (as opposed to options) should be subject to vesting. In my opinion, that sort of provision is only appropriate in very, very early financings.

  8. thanks for the charts! they made ​​these statistics more understandable and perceived

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