A Founder's Guide to Negotiating Leaver Provisions
Leaver provisions determine what happens to your equity if you leave your startup. Here's a tactical guide to negotiating them to protect yourself and your team.
TL;DR: Leaver provisions define what happens to a founder's or employee's equity upon departure. The key is negotiating the definitions of "Good Leaver" (leaves with vested equity at fair value) and "Bad Leaver" (leaves with vested equity repurchased at a low price). Founders must secure narrow "Bad Leaver" terms, define "Good Reason" for their own resignation, and negotiate for double-trigger acceleration on their vesting.
Key takeaways
- Define "Bad Leaver" narrowly to cover only serious misconduct like fraud.
- Insist that termination without cause makes you a "Good Leaver."
- Negotiate for double-trigger acceleration in case of an acquisition.
- Ensure the company's buyback right on vested shares is at Fair Market Value (FMV) for Good Leavers.
- Add a "Good Reason" clause allowing you to resign under specific adverse conditions.
- Always have experienced legal counsel review your term sheet.
What Are Leaver Provisions, Really?
Leaver provisions in a term sheet answer one question: What happens to your equity if you leave the company? This applies to you, your co-founders, and key employees. It’s not just a minor detail; it’s a critical mechanism that governs a huge portion of your potential outcome.
Investors are betting on the team as much as the idea. They need assurance that the key people who hold significant equity are economically committed to staying and building the company. Leaver provisions create this incentive. They also provide a clear, pre-agreed process for clawing back equity from a departing founder or employee to be used for their replacement.
Forget the legal jargon for a second. Think of it as a prenuptial agreement between you, your co-founders, and your investors. You don't want to need it, but you absolutely must have a fair one in place before you commit.
The Core Mechanic: "Good Leaver" vs. "Bad Leaver"
All leaver provisions center on this distinction. The financial consequences are night and day, which is why negotiating the definitions is one of the most important things you will do in the financing process.
"Good Leaver": The Amicable Departure
A Good Leaver is someone who leaves the company for reasons that aren't considered detrimental or harmful. Your goal is to make this definition as broad as possible.
Standard Good Leaver Events:
- Death or permanent disability.
- Termination by the company without "Cause".
- Resignation for "Good Reason" (we'll get to this critical founder protection later).
- Sometimes, retirement or redundancy, though less common in early-stage startups.
The Financial Outcome: If you are a Good Leaver, you keep your vested shares. The company usually retains the right to repurchase those shares (a "call right") to keep the cap table clean, but they must do so at Fair Market Value (FMV). Your unvested shares are always forfeited and returned to the option pool.
Example: You vested 500,000 shares. The company terminates you "without cause" to bring in a new CEO. You are a Good Leaver. The company can repurchase your 500,000 vested shares, but it must pay you the full, current FMV for them.
"Bad Leaver": The Punitive Exit
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