Home > Journals > WMLR > Vol. 68 (2026-2027) > Iss. 1 (2026)
William & Mary Law Review
Abstract
Employees join startup ventures to participate in the financial upside of a future acquisition of the company through the equity ownership stake they are granted upon hire. However, startups and their founders are beginning to break the age-old deal they have made with rank-and-file employees that ensures the value of employee equity remains high in an acquisition. Founders have broken this deal by allowing acquirers to hire the startup’s star talent and purchase rights to the company’s core technology for the bulk of the would-be purchase price of the company (the Traitor Transactions). These Traitor Transactions leave behind rank-and-file employees, along with the remains of the company itself, to be acquired by a different suitor for far less than expected. This shift in acquisition structure threatens the future viability of human-built startups by discouraging employees from joining companies that will abandon their financial interests come acquisition time.
This Article builds on existing research on equity compensation contracts and, further, provides a first-of-its-kind account of how startup founders and acquirers are beginning to break the deal they have made for decades with startup employees. Additionally, this Article makes significant contributions to the existing literature by exposing the rise of these Traitor Transactions in the startup context; connecting the onset of artificial intelligence to these Traitor Transactions; and proposing a Traitor Clause, which can be added to the corporate charter and all equity-granting contracts between the company and its employees. This Traitor Clause is designed to protect the financial interests of the employees left behind in Traitor Transactions and, more importantly, to appeal to the interests of all typical stakeholders of new ventures with the goal of fostering widespread adoption of the proposal.