Legal & Compliance
Acceleration Clause
A provision that triggers immediate repayment of outstanding debt upon certain events like default or change of control.
An acceleration clause is a contractual provision that allows a lender or investor to demand immediate repayment of the entire outstanding balance upon the occurrence of specified triggering events. Common triggers include payment default, bankruptcy filing, breach of covenants, or a change of control transaction.
In Practice
When the startup missed two consecutive interest payments on its venture debt, the acceleration clause was triggered, requiring immediate repayment of the full $5M principal plus accrued interest.
Why It Matters
Acceleration clauses create significant risk for startups carrying debt. Understanding these triggers helps founders avoid inadvertent defaults that could force premature repayment and destabilize the company.
VC Beast Take
Smart founders negotiate narrow acceleration triggers and cure periods. A well-drafted acceleration clause should give the company reasonable time to remedy minor defaults before the nuclear option kicks in.
Related Concepts
Further Reading
What Happens to Your Stock Options If Your Startup Gets Acquired
Acquisitions are where startup equity either pays off or evaporates. Here's how acceleration clauses, liquidation preferences, and deal structure determine whether employees see real money.
How to Negotiate Your Term Sheet: A Founder's Playbook
A tactical guide to negotiating your startup term sheet — which terms matter most, where to push back, and how to protect your interests without killing the deal.
How to Read a Term Sheet: A Practical Breakdown
Term sheets aren't designed to be readable. Here's a section-by-section guide to what matters, what's standard, and what should make you walk away.
Term Sheet Explained: Every Clause Founders Must Know
Term sheets are dense, jargon-heavy, and consequential. Here's a founder-friendly breakdown of every major clause and what it means for your company.
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