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A friend of mine is at a startup, and the startup is having a big exit. It is being bought by a large company. Everything sounds great, except... he has only unvested stock options and under the terms of the deal unvested stock options are not worth anything. Only vested options get any money, and unvested options are canceled.

He took a big pay cut to go to the startup, worked his butt off, and has been there just under a year. His options start vesting after one year. He is feeling sort of screwed.

My questions are:

  1. Is there anything he can do now to help himself get some kind of compensation for this exit?
  2. If he goes to another startup in the future, how can he prevent this from happening again?
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Isn't the vesting exactly for this? You don't receive the full value, but just after all the time passed, and you worked at the company till vesting. He can't probably do anything. Under a year is not that much. – Ross Jun 1 '11 at 18:38
The vesting is to get you to stick around. If the friend didn't quit, or get fired or laid off, the options should continue to vest in the absence of his agreeing that they wouldn't. – Bob Murphy Jun 1 '11 at 19:11
He worked there for a short time and provided no capital, therefore he/she is not vested. This is a pretty standard agreement. – maple_shaft Oct 28 '11 at 10:54

3 Answers

up vote 2 down vote

There are two possibilities here.

The first one is where he signed an option agreement that clearly specifies that if there's an exit, his un-vested options vanish. In that case, he's stuck. In any case, he needs to watch out for that in future startups.

The second one is where the option agreement doesn't clearly specify what happen in an exit. In that case, he should go see an attorney. IANAL, but my guess is the legal doctrine of privity could apply in this case.

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up vote 1 down vote

Take a lawyer. Prepare to sue.

Depending on the wording of his contract.... the purchaser can not decide to not honour the options. This is called theft. Under normal circumstances, he HAS the options vested, the buyer has to honor them OR BUY HIM OUT. Which is a two sided process. I.e. he HAS to agree.

That said,the details can be tricky, so consulting a lawyer is mandatory here.

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up vote 0 down vote

I had the reverse situation. I had vested 4 years (and left) and the acquisition was considered an asset sale. The thing was that the employees got massive raises and huge quarterly bonuses.

It's pretty much equivalent to screwing all of the employees that built the company and finding a way to only pay to keep the technology and people remaining. I'm not sure if the investors got anything out of it. My hunch is that the investors had bridge loans out and agreed to having them paid off and taking the loss on the stock.

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