Startup Stock Options – Why A Good Deal Has Gone Bad

Steve Blank

For most startup employee’s startup stock options are now a bad deal. Why Startups Offer Stock Options. In tech startups stock options were here almost from the beginning, first offered to the founders in 1957 at Fairchild Semiconductor , the first chip startup in Silicon Valley.

Why Uber is The Revenge of the Founders

Steve Blank

To turn your company’s stock into cash, you engaged a top-notch investment bank (Morgan Stanley, Goldman Sachs) and/or their Silicon Valley compatriots (Hambrecht & Quist, Montgomery Securities, Robertson Stephens). None of this was law, and nothing in writing required this; this was just how these firms did business to protect their large institutional customers who would buy the stock. Hire a CEO to Go Public. A version of this article is in the Harvard Business Review.

What’s a Fair 409A Discount?

VC Adventure

As is true today, there was a requirement that options be priced at or above the “fair market value” of the underlying stock (otherwise there would be tax consequences to the optionee and sometimes to the company as well). Quick note: I’m not your lawyer.

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How to Raise Investor Funding for Your Startup

Early Growth Financial Services

Valuation — Know what these terms mean: Fully-diluted — This includes all issued stock and anything that could be converted into common stock (typically after an acquisition or IPO), such as your stock option pool.

Legal Documents for Your Startup with Founder's Workbench

ReadWriteStart

Documents that can be created include a Certificate of Incorporation, Bylaws, Consent of Board of Directors, and Common Stock Certificates.

The Corrosive Downside of Acquihires

Both Sides of the Table

A couple of tech giants throw millions around in either cash (for which they have hoards) or part with some publicly traded stock. The Aqui-hire Business. Hire legions of young, impressionable graduates from the top engineering universities.

How to Form a Corporation

Up and Running

It’s common to feel a bit lost or overwhelmed at this stage, but with this guide, you’ll gain confidence in your ability to create your new business entity and get back to the work you love. Your choice here is to either hire an agent or be your own. Issue stock.

4 Deadly Legal Mistakes That Startups Make

Scott Edward Walker

And please don’t tell us to hire a lawyer.) Startup Issues 83(b) election Ask the Attorney founder vesting intellectual property IP stock purchase agreement VentureBeat vesting restrictions Winklevoss twins

Cap Table Clean Up

ithacaVC

They are typically pretty simple: (i) shares owned by founders and (ii) shares authorized for issuance in a stock option pool, some of which may be issued to employees already and some of which will be available for future issuance. Let’s assume that Founder X owns 800,000 shares of common stock and Founder Y owns 1,300,000 shares of common stock and that the option pool in total has 356,758 shares allocated (to make the total stated above).

Want to Know How VC’s Calculate Valuation Differently from Founders?

Both Sides of the Table

Things like “ participating preferred stock &# in legalese unsurprisingly never actually call out, “hey, this is the participating preferred language.&# We got a3x participating liquidation preference with interest (not participating with a 3x cap, but 3x participating.

Startup Equity For Employees

www.payne.org

1 Stock. 2 Stock Classes: Common and Preferred. 5 Stock vs Options. 6 Founders / Restricted Stock. The re-heating of the venture funded tech market has pushed a heat up of the hiring market, and Im getting more calls from friends asking for help understanding startup stock (equity) offers. Important disclaimer: Ive got experience negotiating stock compensation packages from both sides of the table. Stock. Stock vs Options.

The Truth About Convertible Debt at Startups and The Hidden Terms You Didn’t Understand

Both Sides of the Table

Can you imagine investing in the stock market where your price was determined at a future date and the better that company performed the HIGHER the price you paid for that investment. I want 100% of my stock to convert at that lower price.” What happens in a sale or acqui-hire?

Cash-strapped? How to pay for services with your startup’s equity

The Next Web

And perhaps most importantly, equity is a business’ most precious resource, and the amount you give a contractor in stock can end up being worth many, many times more in a few years. Many young tech startups reserve 15%-20% for employee stock options.

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How to Fund Your Startup Without Losing Control

Up and Running

They allow you to hire more people, purchase new technology, and establish new business connections, among many other benefits. The right-of-first-refusal clause, however, proved a significant impediment in his attempted sale of stock to the industry insiders.

Should Entrepreneurs Attend Business School?

Up and Running

C Corp versus LLC, non-competes, liquidation preferences, preferred versus common stock, and so on). After three to four years in the corporate world, most ambitious young professionals start thinking about the next step in their career.

Equity for Consultants – Keep it Simple!

www.mattbartus.com

The most you lose is 1 or 2 months of vesting on the stock. First, you’d probably want them to receive common stock, not preferred stock (which is the likely next round). Do the implications of hiring independent contractors differ state to state?

Surround yourself with great, sharing advisors.

Berkonomics

There is no limit to the number of individuals for such a board, but there is a practical limit to the amount of cash and / or stock to be allocated to these outside advisors. For this, an advisory board member for a small to medium sized company should expect to receive options equal to ¼% of the fully diluted stock of the company, vesting over two years, and subsequent grants of the same size if renewed in subsequent two year intervals.

Should You Offer Equity Compensation to Employees?

Up and Running

At the time, Facebook wasn’t the goliath it is today and so, Choe was given a couple of options: he could have $60,000 in cash, or stock (equal to the equivalent amount of the cash back then). Stock options (known as “share options” in the U.K.) Restricted stock: .

When do I need to incorporate a company?

Startup Company Lawyer

Incorporating a company and issuing stock to the founders will help prevent misunderstandings among the founders about equity splits. Please keep in mind that even if a company is incorporated, founder stock purchase agreements with repurchase rights over unvested stock if founders leave are not included with the documents from typical online incorporation services. Hiring employees or third party contractors. Issuing stock options.

IP 54

Who Says You Can’t Do It All? I Do.

Up and Running

But, tragically, 3 years after their apex, this firm sold for less than their annual revenue, laid off nearly the entire staff, and left common stock shareholders, my friends included, with nothing.

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Pre-Series A Startup Boards

Austin Startup

The Board of Directors, however, is the most powerful group of people in the Company , with the ability to hire and fire senior executives and approve (or block) key transactions. This means the investor has the right to observe everything that happens at the Board level, which includes hiring people, equity grants, approving major deals, etc. Their interests as an investor are more aligned with the new VCs investing in the Series A than they are with the Common Stock.

The Option Pool Shuffle

venturehacks.com

Use a hiring plan to justify a small option pool, increase your share price, and increase your effective valuation. First, the option pool only dilutes the common stockholders. Solution: Use a hiring plan to size the option pool. Next, make a hiring plan for the next 12 months.

What is TheFunded Founder Institute?

Startup Company Lawyer

What are common planning mistakes and how do you to avoid them? Hiring and Firing. July 14th, 2009: Implement hiring policies and practices. Description: When to hire and when to fire? How to hire the best vendors for the best rates.

Everything you ever wanted to know about advisors: Part 2.

venturehacks.com

You get money, save stock, and amplify the advisor’s social proof in the process. 0.25% of a company’s post-Series A stock. Super advisors The super advisor can get as much stock as a board member: 1%-2% of a company’s post-Series A stock.

Why Co-Founders Are a Startup's Biggest Liability | The Startup Lawyer

thestartuplawyer.com

Who must be a co founder and who can remain a hired principal? When I find, and hire on options, the three perfect CEs/directors must I consider them co founders and treat them accordingly? Who must be a co founder and who can remain a hired principal? When I find, and hire on options, the three perfect CEs/directors must I consider them co founders and treat them accordingly?

How I negotiated my startup compensation

keen.io

For example: Don’t accept equity compensation (stock shares) without knowing the percentage of the company you’ll own. And they gave me a choice whether I’d want more stock or a higher salary.” They decided to give this form of stock to all of the early employees.

Building a new startup hub

Startup Lessons Learned

They take common stock, not preferred, a fact that the entrepreneurs mentioned to me many times. Lessons Learned by Eric Ries Wednesday, August 26, 2009 Building a new startup hub Last week, I had a unique opportunity to spend some time in Boulder at the behest of TechStars. It was a great experience to see a relatively new startup hub in action - and thriving. Its easy to take Silicon Valley for granted.

Startup Founder Agreements

blog.simeonov.com

The number of separate documents may vary but they fall into two categories: Those related to equity, typically a restricted stock purchase agreement (RSPA) and associated escrow and other agreements. However, founder agreements are not set in stone and it is common for them to be tweaked by a little or a lot during the first financing by professional investors. The common number is 25% but, depending on the length of time and contributed resources, it can be up to 50%.

How to Fund a Startup

www.paulgraham.com

A lawyer I asked about it said: When the company goes public, the SEC will carefully study all prior issuances of stock by the company and demand that it take immediate action to cure any past violations of securities laws. Ifyour competitors offer employees stock options that might make themrich, while you make it clear you plan to stay private, yourcompetitors will get the best people. Theres only common stock at this stage. Want to start a startup?