Asset purchase versus share purchase deals
Most startup acquisitions are share purchases, where the buyer acquires the shares of the company directly from its shareholders. Some deals are structured as asset purchases, where the buyer acquires specific assets and contracts rather than the legal entity itself, which changes how proceeds flow to shareholders and how employee equity at exit actually gets paid out.
A portion of the purchase price is often held back in an escrow account for 12 to 24 months to cover warranty claims, and some of it may be structured as an earn-out, paid only if the acquired business hits agreed targets after closing, terms that matter as much as the price seen in a secondary sale.
Distribution order for acquisition sale proceeds
The waterfall is the order in which sale proceeds are distributed among claimholders. Any outstanding debt is repaid first, then preferred shareholders receive their liquidation preference, then remaining proceeds go to ordinary shareholders, including founders and vested option holders, in proportion to their holdings.
| Step | Claim | Amount in this example |
|---|---|---|
| 1 | Outstanding company debt | EUR 500,000 |
| 2 | Series A preferred (1x non-participating), invested EUR 4m | EUR 4,000,000 |
| 3 | Seed preferred (1x non-participating), invested EUR 1m | EUR 1,000,000 |
| 4 | Remaining to ordinary shareholders (founders, employees) | EUR 4,500,000 of a EUR 10m sale |
In this example a EUR 10m sale leaves EUR 4.5m for ordinary shareholders after debt and preferences are paid, assuming both preferred classes take their preference rather than convert. If the sale price were much higher, both preferred classes would likely convert to ordinary shares instead, to take their pro rata share of the larger pie.
Acceleration and exercise rules during acquisitions
- Vested options: typically exercised just before or as part of closing, with the strike price deducted from proceeds, or cashed out net of strike price directly
- Unvested options: usually cancelled unless the option plan or employment terms include acceleration
- Single-trigger acceleration: some or all unvested options vest automatically on the sale itself
- Double-trigger acceleration: unvested options vest only if the sale is followed by termination without cause, common at more senior levels
Whether options accelerate depends entirely on the specific plan rules and any individual grant letter. Employees should check their documents rather than assume any particular treatment.
Net cash payout for vested option holders
An employee holds 10,000 vested options with a strike price of EUR 1.00 per share. The acquisition values ordinary shares at EUR 5.00 per share. The employee's payout is (EUR 5.00 - EUR 1.00) x 10,000 = EUR 40,000, before any applicable tax. If they also hold 5,000 unvested options with single-trigger acceleration in their agreement, those vest on the sale and are cashed out on the same basis, adding EUR 20,000 more.
Acceleration questions employees ask most
- Do all employee options accelerate on an acquisition?
- No. Acceleration depends on the specific option plan and grant terms; many plans only accelerate on a double trigger of sale plus subsequent termination.
- What happens to unvested options if there is no acceleration clause?
- They are typically cancelled at the point of sale, since the employee never earned the right to them.
- Why is part of the purchase price held in escrow?
- To give the buyer a pool of funds to draw from if warranty or indemnity claims arise after closing, reducing the buyer's risk.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.