Revesting of Equity and Other Founder Executive Concerns When Your Company Is Acquired

For many founders, the acquisition of their company represents the long-awaited liquidity event. This is payday! Your investors are cashing out, the buyer is celebrating increased market share or synergies it was seeking. But what about you, the founder CEO, or co-founder CTO? Too often, founders discover that the acquisition is not an immediate liquidity event for them and on occasion even worse. If the founder executive is not careful, the acquisition can potentially spell a substantial loss of so much of what you achieved.

This article offers the founder CEO or C-level executive a roadmap to help you navigate your way through the potential minefield laid out for you in acquisition documents prepared by the lawyers. Often, those lawyers, the buyer’s lawyer and corporate counsel for your company, are not fully taking account of your interests.

In this article, I break down the key issues founders and C-level executives must address when their company is acquired:

• How much equity should be subject to revesting, and on what terms.
• How to resist the “double trigger” trap and secure fair acceleration when investors are paid.
• How to structure compensation and fresh equity grants to reflect your ongoing value.
• How to negotiate restrictive covenants that don’t unfairly restrict your future.

This article analyzes these key issues and others from your viewpoint and how you can respond to protect yourself while still being supportive to close the deal.

Negotiations Over Level and Terms of Revesting of Founder Equity

Revesting of founder equity has become a standard demand in acquisitions. Buyers want to ensure continued commitment and performance. But if negotiated poorly, revesting can strip away value you’ve already created, turning you into “captive labor” for someone else’s payday.

When an acquirer purchases your company, one of their first demands is often that founders “revest” a portion of their equity. The logic is simple: the buyer wants assurance that the founders who built the business will stay on and deliver value after the acquisition. But for the founder, revesting can feel like a clawback — forcing you to re-earn stock you already created value for.

Your equity is not a gift; it is the product of years of sacrifice, vision, and execution. Revesting should never be applied retroactively to all of your holdings. Instead, negotiations should focus on a fair split:

your goal is to leave most of your past-earned equity untouched and only a portion of your equity position to new vesting. For some founders whose equity is already subject to vesting, then that should be left in place with no new vesting or no more than a modest amount added to vesting.

So, first, the portion of equity to be revested needed to be strongly negotiated and beyond that, the revesting terms too also matter. Commonly, acquirers will propose a three- to four-year time-based vesting schedule. However, if you have already put in five or more years into the company, you should seek a shorter period of vesting. Others may tie vesting to performance goals, such as revenue targets or successful integration milestones. These targets need to be reasonable and achievable.

Fighting the Double Trigger So You Are Not Captive Labor

Two other important areas of founder executive protection are liquidity and equity acceleration.

Acquirers often try to impose a double trigger on liquidity and vesting acceleration: your stock accelerates only if (1) the company is sold and (2) you remain employed or are terminated without cause afterward. On paper, this may look like “job protection.” In practice, it can turn founders into “captive labor” for the new owner — forced to stick around on their terms in order to realize value that should have been yours at closing. These topics are discussed in two earlier articles I wrote and published in CEOWORLD magazine, “Fighting the Double Trigger as Free Labor vs. Slavery” and “Fighting the Double Trigger as Free Labor vs. Slavery II (in public companies).”

My articles use the arguments of Abraham Lincoln and the Republicans of the 1850s to argue for a single trigger. That when the acquisition occurs, the benefits should not go only to the owners or investors but also to the founders. Nor should the investors and owners repeat a premium on sale by their ability to deliver the captive labor of the founders who must remain to hope to achieve their reward. True they are not slaves, but Lincoln would still call this the “theft of labor.”

With a single trigger, the owners too experience a level of liquidity on sale of the company and significant acceleration of unvested shares. That way, the investors’ payday will also be your payday.

To the extent shares are revested and new equity is gained in the successor, here too, the founder should seek terms that provide for the single trigger for 100% vesting and liquidity if the buyer flips the company within a short period after acquiring it. Without this, you could find yourself locked into years of vesting only to see your equity value cashed out by someone else.

Employment Compensation Beyond Revested Shares: Make Sure You’re Paid for the Road Ahead

When your company is acquired, revesting a portion of your old equity may keep you tied to past value, tied to the company for the benefit of the new owners. But at the same time, you are working to help those new owners build new value.

Part of fighting for the Single Trigger is to assure you get at least some significant liquidity on the sale so that you can negotiate as “free labor” the terms of retention. Buyers sometimes lean on revesting as the primary incentive to keep founders engaged. But to the extent you secure a single trigger and freedom to negotiate as free labor, you can force the new owners to accept the realities of a reasonable executive retention package.

Part of that is a re-fresh of your equity position. You should seek some level of new equity compensation for the future value you’ll help create under new ownership. Thus, one of the most important negotiations post-acquisition retention is a fresh equity package. This could take the form of new stock options, RSUs, or restricted shares, aligned with your role as a senior executive in the combined entity. Without fresh equity, you risk working to grow someone else’s company without sharing in the upside.

You should also negotiate a market-level base salary that reflects your responsibilities post-acquisition, along with an annual bonus plan tied to realistic performance goals. This ensures your financial rewards aren’t all deferred into uncertain vesting schedules — you’re compensated in real time for the leadership you continue to provide.

Finally, your new employment contract should have other standard protections for you in terms of position, duties, support and severance protections, as discussed in other articles of mine on CEO, CFO, COO and other C-Level Officer Agreements previously published by CEOWORLD magazine.

Restrictive Covenants in Acquisition Agreements: Keep the Door Open for Your Next Venture

In the context of an acquisition, non-compete clauses are almost always on the table. Buyers want to protect the value they’ve just purchased by ensuring you won’t immediately turn around and launch a competing business. That’s reasonable — but only up to a point.

Non-competes in M&A deals often run longer and broader than in standard executive employment agreements. Some stretch two to five years, across wide geographies, and cover entire industries rather than your actual line of business. While statutes like the Massachusetts Non-competition Agreement Act (MGL Chapter 149, Section 24L) limit enforcement to one year, that law does not apply to such covenants made as part of a business entity. Most state law and case law allow the longer term for the non-compete in those cases.

As a founder, you must negotiate scope and duration. You may have to accept the longer duration, but you can focus on defining its scope, so that it’s truly necessary to protect the buyer’s interests — not so broad that it bars you from working in your own field for years to come. The best approach is to set out which competitors you cannot work for or to define the class so it is clear what your restrictions are.

Beyond non-competes, acquirers often demand non-solicitation covenants (no poaching employees, customers, or vendors) and sweeping confidentiality obligations. These too are negotiable. Non-solicits should be limited in time and apply only to employees you directly managed, not the entire organization. Confidentiality provisions should not prevent you from using your general skills,

knowledge, and relationships in future endeavors. Otherwise, you risk being boxed out of opportunities that flow naturally from your career.

Leverage Your Importance in the Transaction – Engage Counsel to Protect Your Interests

Founders often underestimate the leverage they hold in an acquisition. Buyers are not only purchasing technology, market share, or IP — they are also buying the credibility and leadership of the founding team. Without you, much of the value can walk out the door. Use that leverage. Push back on excessive revesting, demand fair acceleration, and insist on reasonable compensation and covenant terms. Often, the buyer may need you more than they might admit.

The acquisition process blends two worlds: corporate deal-making and executive employment law. Founders need an advisor who understands both. Your M&A counsel will focus on the sale terms for the company, and often for the benefit of the investors. If the investors get paid, you should too. Your executive employment counsel will focus on protecting you. Don’t assume one set of lawyers can handle both effectively. An experienced executive employment attorney will do his or her best not to hold up or kill the deal. But at the same time, you counsel will also work to assure that the final deal is right for you as well as for the investors, and that your individual interests — compensation, equity, and career freedom — are not sacrificed in the larger transaction. If there is to be sacrifice, it needs to be shared.

Remember, when your company is acquired, you are not just selling a business — you are also negotiating your future. Handle revesting of equity, compensation, and covenants with the same care you gave to building your company, and you’ll ensure that the acquisition becomes the reward it was meant to be.

Written by Robert A. Adelson, Esq. Have you read?
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