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Can anyone explain why vesting acceleration is considered "undesirable" by acquirers and VCs? https://handbook.clerky.com/hiring/vesting-acceleration https://h

Can anyone explain why vesting acceleration is considered "undesirable" by acquirers and VCs? https://handbook.clerky.com/hiring/vesting-acceleration https://handbook.clerky.com/hiring/vesting-acceleration Does it mess with the company valuation or who gets paid out? Isn't this a bit unfriendly to early employees?

shay_ker 6y ago
Also why is vesting acceleration given to advisors, rather than employees?
- swampthing 6y ago
  Co-founder of Clerky here :) It's generally less controversial for advisors because it's unlikely that an acquirer will want to retain the advisers for a company it's acquiring.
  - shay_ker 6y ago
    Must be some valuable advisors then! Makes sense, thanks for answering!
Nowado 6y ago
'friendly to owners/unfriendly to employees' is pretty much the main trade off dimension in the whole topic. All that follows seems trivial after we acknowledge that interests of employers and employees don't align, but for the sake of clarity: it creates a 'reward' scenario for employee that isn't a 'reward' scenario for employer (further, compared to vesting taking place at all). Buying party loses asset in a form of trained employee motivated to increase company value, which lowers the value of acquisition. Nobody wants to lose money.
icedchai 6y ago
I think it is a more practical concern: You don't want a good chunk of your employees leaving immediately when the company gets acquired. Many early startups, for example, have a bunch of code that is worth very little without the people who know how it works.
- shay_ker 6y ago
  i hear that, but isn't that also a problem for the founders leaving as well? iirc, most (good?) acquisition agreements come under the condition that the founders stay on for a period of time and hit performance goals, and i'm assuming this still includes accelerated vesting. i guess i'm wondering why that doesn't apply to employees?
  - adamw2k 6y ago
    Founders get golden handcuffs via the deal (if they're desired). At the end of the day, just about every "material" trigger is renegotiated in an acquisition...
DoreenMichele 6y ago
Vesting is a safety device for the company. Equity isn't really intended to "reward" early employees. It is intended to motivate them to work hard on the company so there will be something of value out of which to get a big reward. The short video here (not the written stuff on the page) may be helpful: https://www.ycombinator.com/library/5x-how-to-split-equity-among-co-founders https://www.ycombinator.com/library/5x-how-to-split-equity-a... A company is like a living organism. Living organisms have inputs and outputs and that's part of being alive. In this case, one "output" is that people leave sometimes. The fact that it happens is natural and normal. But you don't want them to leave in a way that's like cutting out your heart without anesthesia.
gamblor956 6y ago
VCs have learned not to give the gains of early employees' hard work back to them. It leaves money on the table that could have gone to the VCs. The idea is that it's bad because the employees might leave if you reward them with a lot of money. But if you screw them out of a lot of money (when the startup gets acquired, aka the traditional exit event that generated employee rewards), they're even more likely to leave. The argument that the IP remaining in the startup is useless if the employees leave is ridiculous, because if that is the case, then the valuable asset is not the IP, but the employees themselves. The undesirability of vesting acceleration is thus generally limited to the VC-funded tech community, as it is otherwise considered a desirable benefit everywhere else.

shay_ker 6y ago

Also why is vesting acceleration given to advisors, rather than employees?

swampthing 6y ago
Co-founder of Clerky here :) It's generally less controversial for advisors because it's unlikely that an acquirer will want to retain the advisers for a company it's acquiring.
- shay_ker 6y ago
  Must be some valuable advisors then! Makes sense, thanks for answering!

Nowado 6y ago

'friendly to owners/unfriendly to employees' is pretty much the main trade off dimension in the whole topic. All that follows seems trivial after we acknowledge that interests of employers and employees don't align, but for the sake of clarity: it creates a 'reward' scenario for employee that isn't a 'reward' scenario for employer (further, compared to vesting taking place at all). Buying party loses asset in a form of trained employee motivated to increase company value, which lowers the value of acquisition. Nobody wants to lose money.

icedchai 6y ago

I think it is a more practical concern: You don't want a good chunk of your employees leaving immediately when the company gets acquired. Many early startups, for example, have a bunch of code that is worth very little without the people who know how it works.

shay_ker 6y ago
i hear that, but isn't that also a problem for the founders leaving as well? iirc, most (good?) acquisition agreements come under the condition that the founders stay on for a period of time and hit performance goals, and i'm assuming this still includes accelerated vesting. i guess i'm wondering why that doesn't apply to employees?
- adamw2k 6y ago
  Founders get golden handcuffs via the deal (if they're desired). At the end of the day, just about every "material" trigger is renegotiated in an acquisition...

DoreenMichele 6y ago

Vesting is a safety device for the company. Equity isn't really intended to "reward" early employees. It is intended to motivate them to work hard on the company so there will be something of value out of which to get a big reward. The short video here (not the written stuff on the page) may be helpful: https://www.ycombinator.com/library/5x-how-to-split-equity-among-co-founders https://www.ycombinator.com/library/5x-how-to-split-equity-a... A company is like a living organism. Living organisms have inputs and outputs and that's part of being alive. In this case, one "output" is that people leave sometimes. The fact that it happens is natural and normal. But you don't want them to leave in a way that's like cutting out your heart without anesthesia.

gamblor956 6y ago

VCs have learned not to give the gains of early employees' hard work back to them. It leaves money on the table that could have gone to the VCs. The idea is that it's bad because the employees might leave if you reward them with a lot of money. But if you screw them out of a lot of money (when the startup gets acquired, aka the traditional exit event that generated employee rewards), they're even more likely to leave. The argument that the IP remaining in the startup is useless if the employees leave is ridiculous, because if that is the case, then the valuable asset is not the IP, but the employees themselves. The undesirability of vesting acceleration is thus generally limited to the VC-funded tech community, as it is otherwise considered a desirable benefit everywhere else.