Double-Trigger RSUs at Private Companies: What Vesting Really Means Before a Liquidity Event
At a late-stage startup, "vested" RSUs may not yet be yours in any practical sense. Understanding the second trigger helps you plan cash, taxes, and expectations.
Restricted stock units have become the dominant form of equity at large private companies in the Bay Area. If your grant came from a company that is still private, it very likely includes a double-trigger vesting condition. The distinction matters because it changes when you actually receive shares, when you owe tax, and what happens if the company never reaches the exit it is planning for.
What the two triggers are
A double-trigger RSU requires two conditions before shares are delivered. The first is the familiar time-based schedule, often four years with a one-year cliff. The second is a liquidity event, typically an IPO or an acquisition. As Carta's explanation of single- versus double-trigger RSUs describes it, the units combine time-based vesting with event-based vesting, and taxation is deferred until the second trigger is satisfied.
The reason companies structure grants this way is practical. An RSU that settles into shares is taxable compensation at settlement, whether or not there is a market to sell those shares. Without a second trigger, an employee at a private company could owe tax on stock they cannot sell. As Zajac Group's overview notes, the double-trigger feature can help mitigate the cash flow issues associated with a taxable event on an illiquid stock.
What "vested" means on your statement
Your equity portal may show units as vested once the time condition is met. In legal terms, those units are usually still unsettled: you do not own shares, you cannot vote, and you cannot sell. If you leave the company, the plan document controls whether time-vested units survive until a liquidity event or are forfeited. Many plans allow departed employees to keep time-vested units, but not all do, and some impose deadlines. A number of plans also provide that units expire if no liquidity event occurs within a fixed period after grant. Reading the RSU agreement is the only way to know.
The tax moment arrives all at once
When the second trigger fires, every time-vested unit settles at once, and the entire value is ordinary income in that year. Consider a hypothetical engineer who accumulated 8,000 time-vested units over three years at a company that then goes public at $40 per share. Roughly $320,000 of compensation lands in a single tax year, on top of salary. Federal withholding on supplemental wages is 22% up to $1 million and 37% above that, per IRS Publication 15, and California withholds at a 10.23% supplemental rate. For someone whose combined marginal rate is closer to 50%, the shortfall can reach tens of thousands of dollars, due with the return or through estimated payments.
Companies commonly withhold shares to cover taxes at settlement, which reduces the number of shares you receive. After an IPO, a lockup period may prevent you from selling the remaining shares for several months, so the tax bill can arrive before the ability to raise cash to pay it. With the 37% bracket starting at $640,600 for single filers and $768,700 for joint filers in 2026, a large settlement year can push a mid-bracket household into the top rate.
Tender offers and secondary sales
Some private companies now run tender offers that allow employees to sell a portion of their holdings before an IPO. According to Carta's first-half 2026 tender offer data, 71 tender offers totaling about $3 billion were run on its platform in the first half of the year, most at Series C and later companies. Whether a tender offer counts as a liquidity event for RSU purposes depends on the plan; often it does not, and unsettled RSUs cannot be sold in a tender at all. Option holders may have more flexibility in those windows.
Planning around uncertainty
Because the second trigger is outside your control, it is reasonable to treat unsettled RSUs as a possibility rather than an asset when budgeting for a home purchase or other commitments. It may help to estimate the tax that would be due if the company went public at its most recent preferred price, to think through how you would raise that cash during a lockup, and to plan what you would do with the shares afterward. The value could also be far lower than the last valuation, or zero, if the company is acquired for less than its preferred stock stack or never exits.
This article is educational only and does not constitute investment, tax, or legal advice. Please consult a qualified professional about your own equity awards.
Important Disclosures
Important Disclosures: Propulsion Capital Management is an investment adviser registered with the State of California Department of Financial Protection and Innovation. Registration does not imply a certain level of skill or training. This article is provided for general informational and educational purposes only and does not constitute investment, tax, legal, or accounting advice, nor an offer or solicitation to buy or sell any security or to adopt any particular investment strategy. The information is believed to be accurate as of the date of publication but is subject to change without notice; tax laws and regulations change frequently and their application depends on individual facts and circumstances. Nothing herein should be relied upon as a substitute for personalized advice from a qualified professional. Investing involves risk, including the possible loss of principal, and past performance is no guarantee of future results. Diversification does not ensure a profit or protect against loss. Any examples are hypothetical, are for illustrative purposes only, and do not reflect the experience of any client. Links to third-party websites are provided for convenience; Propulsion Capital Management does not endorse, and is not responsible for, the content of third-party sites. Propulsion Capital Management does not provide tax or legal advice; please consult your tax adviser or attorney regarding your specific situation.
