đ Educational Resource Disclaimer
This glossary provides general explanations of common equity terms. These definitions and examples are for educational purposes only and do not constitute legal, financial, or tax advice.
Equity structures vary significantly between companies, and your specific situation may have unique terms and conditions. For guidance on how these concepts apply to your individual situation, please consult with a qualified legal, financial, or tax professional.
Acceleration
A provision that speeds up vesting, causing unvested equity to vest immediately or on an accelerated schedule. Usually triggered by specific events.
Types:
Single-Trigger Acceleration
Vesting accelerates based on ONE event (usually acquisition).
Example:
You have 24 months of unvested options
Company is acquired
Single-trigger acceleration: All 24 months vest immediately
Double-Trigger Acceleration
Requires TWO events (usually acquisition AND termination).
Example:
You have 24 months of unvested options
Company is acquired (Trigger 1)
Youâre terminated within 12 months after acquisition (Trigger 2)
Your unvested options accelerate
Common acceleration terms:
100% acceleration: All unvested equity vests
50% acceleration: Half of unvested equity vests
12-month acceleration: 12 monthsâ worth of vesting happens immediately
Who typically gets acceleration:
Founders: Often have single-trigger (negotiable)
Executives: Double-trigger (25-50% acceleration)
Employees: Usually no acceleration (or small double-trigger)
Why it matters: Acceleration protects you if the company is acquired and youâre let go. Without it, you could lose years of unvested equity through no fault of your own.
Change of Control
An event where ownership or control of the company changes hands, typically through acquisition, merger, or sale. Often triggers acceleration provisions.
What qualifies:
Acquisition by another company (asset or stock purchase)
Merger
Sale of substantially all assets
Change in majority board control
Why it matters: Change of control is the most common trigger for acceleration clauses. Understanding what qualifies helps you know when your acceleration provisions might kick in.
Cliff
A waiting period before any equity vests. If you leave before the cliff, you get nothing. Once you pass the cliff, you get all the equity that would have vested during that period at once.
How it works:
Grant: 48,000 options with 1-year cliff
Leave at 11 months: Get 0 options (nothing vested)
Stay 12 months: Get 12,000 options (25% vested)
Then monthly vesting for remaining 36 months
Why cliffs exist:
Protects company from employees who leave quickly
Ensures commitment before earning equity
Investor expectation for employee grants
Typical cliff periods:
Employees: 1 year
Advisors: 3-6 months
Executives: Sometimes no cliff (typically negotiated)
Example scenario: Early employee joins, gets equity, then leaves after 6 months. Without a cliff, theyâd walk away with 12.5% of their grant for minimal contribution. With a 1-year cliff, they get nothing â fair protection for the company.
Why it matters: The cliff is the most critical date in your vesting schedule. Missing it by a few days can mean forfeiting significant equity.
Vesting
The process by which you earn the right to keep your equity over time. Unvested equity can be repurchased by the company (at the original price) if you leave.
Why vesting exists:
Incentivizes long-term commitment
Protects company if someone leaves early
Standard practice expected by investors
Example:
Grant: 48,000 shares with 4-year vesting
Monthly vesting: 1,000 shares per month
After 18 months: 18,000 shares vested (yours to keep)
Remaining: 30,000 shares unvested (company can repurchase if you leave)
What âvestedâ means:
Youâve earned the right to keep these shares/options
Company can no longer take them back
You can exercise options (if options) whenever you want
You keep them even if you leave the company
Vesting Schedule
The timeline over which your equity vests. The most common schedule is 4 years with a 1-year cliff.
Standard vesting schedule:
Duration: 4 years total
Cliff: 1 year (see below)
After cliff: Monthly or quarterly vesting for remaining 3 years
Example (4-year, 1-year cliff, monthly vesting):
Grant: 48,000 options
Year 1: Nothing vests until 12-month mark
Month 12: 25% vests (12,000 options)
Months 13-48: 1,000 options vest each month
Alternative schedules:
No cliff: Vesting starts immediately (monthly from day 1)
Different durations: 3-year, 5-year schedules
Back-loaded: More vests in later years
Milestone-based: Vests when goals are achieved
Multi-tranche: Vesting that is a combination of both a milestone-based and duration-based thresholds
Why it matters: Vesting schedules protect the company from someone leaving early with too much equity. The 1-year cliff is particularly important for early employees.
Reverse Vesting
A vesting arrangement where you receive shares upfront (usually founders), but the company has the right to repurchase unvested shares if you leave early.
How it works:
You receive 1,000,000 shares immediately (you own them)
Shares subject to 4-year vesting with 1-year cliff
If you leave after 18 months, company can repurchase 62.5% (30 monthsâ worth) at original price
You keep 37.5% (18 months vested)
Example:
Founder receives 3M shares at company formation
Subject to 4-year reverse vesting
Leaves after 2 years
Company repurchases 1.5M unvested shares
Founder keeps 1.5M vested shares
Why it matters: Reverse vesting is standard for founders to ensure all co-founders stay committed. It protects remaining founders if someone leaves early.