An acceleration clause is a provision in a contract or loan agreement that gives the lender the right to demand full repayment of the loan or outstanding balance immediately if the borrower breaches certain terms of the agreement, such as missing payments or defaulting on the loan.
This clause is often included in loan agreements as a way for the lender to protect their investment and limit their potential losses if the borrower is unable to meet their obligations. The clause can also be present in other types of agreements such as rental or lease agreements, giving the lessor the right to terminate the agreement if the lessee breaches certain conditions.
An acceleration clause in venture capital (VC) funding refers to a provision in a funding agreement that allows the investors to demand that the startup company repay the outstanding balance of the loan if certain conditions are not met.
These conditions could include missing milestones or failing to meet certain performance targets. The clause is intended to protect the investors' investment and give them a means of recouping their funds if the startup is not progressing as expected.