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Is VC fundraising in exchange for equity considered a partial sale of the company?

I was employee at a startup that gave me equity and secretively clawed it back then fired me few months later. Is the law around "sale of company" established to be a full sale of company or can it be a partial sale (e.g. equity to VCs)? Can I effectively pursue legal action against the startup?

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Original question continued: I've worked at the startup before they had major traction and had equity as part of the my compensation with a 4 year vesting period. After my equity has fully vested and before the company publicly announced a major round of VC fundraising (first round ever), the company asked me to sign a new agreement without any equity. I was sent the a new employment contract at 9am and was asked to sign it by 5pm during a busy work day. I didn't have enough time to carefully review its terms or seek advice of counsel. Few months later, the startup fired me, so I curiously reviewed my 2 employment and noticed that the equity clause was missing from the new agreement, thus sparking this question.

Under the old employment contract, the terms of the equity were that I had to be a full-time employee at the time of "sale of company". Does partial sale of company (e.g. equity) to VCs count as "sale of company" and thus trigger a bonus for me?

Please ask clarifying questions if you need more details before providing an answer. I greatly appreciate your advice.

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These agreements typically have a "change in control" clause that gives equity holders specific rights in the event a new owner is taking over. Most likely they structured the deal in such a way as not to trigger such a clause though.

Equity nowadays is usually in the form of stock options, which once vested only give you the right to purchase shares at a fixed "strike" price. Options are typically contingent on continued employment and if you are terminated or quit, you have a fixed amount of time in which to exercise your vested options, or you forfeit them.

Unless they completely changed the company structure (unlikely), your original agreement for the options would still be valid. However, they likely expired when you didn't exercise them upon termination. When the VC invested in the Company, they probably had everyone sign new employment agreements, likely ones that included some form of intellectual property assignment (IPA) in exchange for your employment. It wouldn't need to include prior option grants as they had already been granted.

If you have the agreements, I'd suggest having an attorney review them before too much times passes, otherwise you could end up with nothing.

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July 1, 2020 at 2:52:07 AM

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