The Option Pool Shuffle

SUPPORTED BY Products Archives @venturehacks Books AngelList About RSS The Option Pool Shuffle by Nivi on April 10th, 2007 “Follow the money card!&# – The Inside Man, Three-Card Shuffle Summary: Don’t let your investors determine the size of the option pool for you.

Sizing Option Pools In Connection With Financings

A VC : Venture Capital and Technology

Investors like to require that an unissued option pool is in the pre-money valuation calculation when they put money into early stage companies. This post is about how to size the option pool. What I like to do, as I mentioned in the post I linked to, is agree with the entrepreneur that the option pool will have enough unissued options to fund all the hiring and retention grants that need to happen between the current financing and the next one.

Trending Sources

Option Pools and VC Negotiations

Rob Go

In my last post about raising seed vs. jumping straight to A, I received a good comment from Chris Woods that my analysis neglected to include the impact of option pools that are created at each financing round. In almost every financing round, there is an important stipulation in the term sheet that talks about the employee option pool that will be created in tandem with the financing. Add it up, and ask the VC why that level of options is not sufficient.

Equity for Early Employees in Early Stage Startups


I was asked by a reader how much equity he should give out to early employees and to service providers in a very early stage startup. Founders are likely not paid for a long time and have a sizeable equity percentage for early risk and having the concept.

How to Divide Founder Equity: 4 Criteria to Discuss

View from Seed

Editor’s note: Understanding how to divide founder equity at a startup can be tricky, even to the point of reaching emotional riffs between founders. Below, Lee Hower offers advice for approaching these equity discussions objectively and properly.

Equity 108

Why offering employee equity is crucial for your startup

The Next Web

Dealing almost exclusively with first time startup founders, we tackle the following question with nearly all of our CEOs: How much equity should they give to the employees? In one instance, I told a CEO that we typically recommend a 15 percent stock options pool at seed/Series A stage.

What is the “maximum” amount (%) of a startup an investor should have?


It’s generally not a good idea for an initial investor to own more than 50% of a company (although there are always special exceptions), because the odds are that by the time the company is fully funded (and hopefully successful), the entrepreneur/founder’s equity will be reduced to such an extent that it will have effectively eliminated an incentive for him/her to continue building the company’s value.

Startup Equity For Employees

Startup Equity For Employees. 5 Stock vs Options. 7 Salary vs Equity. 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. UPDATE: If youre a founder or near-founder, your equity terms are likely defined by the funding terms negotiated with the investors. Stock vs Options. Salary vs Equity.

Wenger: Presenting Option Grants to Boards

Ask The VC

Today’s VC post of the day is from Albert Wenger (USV) and titled Presenting Option Grants to Boards. While there is no standard for how to present option grants, Albert lays out a very clear set of eight pieces of data he likes to see. The first four are the the columns in the spreadsheet and each employee / option grant are the rows. The next two are footnotes for options grants that aren’t standard. Equity board of directors equity options wenger

What is an effective “pre-incorporation-agreement” between possible founders of a startup?


Then sit down with your co-founders and divvy up the equity based on the contributions you all believe each of you will make…providing for reverse vesting, a large option pool, and a clear decision-making structure. Pivotal Moments equity Founder equity founder relationships founders incorporation agreement startupsThe bottom line is that the very question you are asking is one of the trickiest things of all when it comes to startup founding.

Raising Funding From Family and Friends: Division of Equity

Business Plan Blog

Raising Funding From Family and Friends: Division of Equity. When it comes to the division of equity in startup, there is a similar process every entrepreneur must follow beginning with raising the first round of startup funding and, if you’re lucky, finishing at the point of IPO.

What’s In A Term Sheet?

Early Growth Financial Services

It could be the size of the option pool, or maybe the provisions around reverse vesting. I discussed Change of Control, Reverse Vesting, and Liquidation Preferences in … Continue reading → Equity / Debt / Venture Funding You came, you pitched, you conquered. Congratulations! But do you know what to do once you’re asked to sign a term sheet? Let me say that first, you should have already retained a good startup lawyer. Most investors will expect this.

The Right Way to Grant Equity to Your Employees

Inc Startups

The equity culture among young technology companies is almost universal. Unfortunately, despite decades of experience building new hire option plans, many start-ups still fail to put in place an equity compensation plan that adequately rewards long term employees over time.

CMO CTO COO Equity and Compensation


I was just asked about a particular startup situation (seed stage, CMO hire, non-founder) and particularly what compensation and equity is appropriate. Quick & Dirty How-To: Employee Stock Option Allocations

What is it Like to Negotiate a VC Round?

Both Sides of the Table

” Today I want to talk about how a VC thinks about equity pricing on your round and particularly if you’re coming off of a convertible note. How much is in the option pool? Well, if you have an option pool of only 6% and have many more execs to hire to build out your team you’re going to ask for more options to be created in the future.

Y Combinator's Sam Altman to Founders: You Get Too Much Equity

Inc Startups

At TechCrunch Disrupt event, investors push for changes to the way startups grant equity to their founders. Altman also argues that employees should get more equity, that they need to be better educated about stock and option grants, and that the tax treatment for options is often unfair.

Punch & Pie: How Should Co-Founders Divide Equity?

Agile VC

As a result, one of the trickier things co-founders tackle is determining the equity split amongst the founding group of individuals. Sometimes co-founders put off the equity split question for some time. Both of these are typically reflected in the founder equity split.

Doing Deals – 3 Tips for Entrepreneurs (Part 2)

Scott Edward Walker

As I saw first-hand in New York City representing big, successful private equity firms, the best dealmakers have an extraordinary ability to take their emotions out of transactions and remain extremely disciplined. Entrepreneurs are often negotiating with guys (or gals) on the other side of the table who are far more deal savvy and experienced than they – e.g., venture capitalists, private equity guys, corporate development guys – and are masters at playing on their emotions.

Raising Capital: 4 Things You Must Do

Inc Startups

Don''t spend all of your energy negotiating valuation when you could be talking about the options pool. VCs may force you to create an options pool to reward future hires with equity. But VCs expect the options pool to come out of your pocket.

Quick Post on Post-Money Valuations

Rob Go

Founders also had to do a little math on the new option pool to really understand what their ownership would be post investment, since it was typically taken out of the company pre-money.

Entrepreneurs: Your instincts are always better than bad advice

The Next Web

In many cases we have observed, the founders have given away too much equity to their first investors — typically angels and family offices, who have little experience with fast-growing startups or the venture capital funding model. Neil Rimer is a Partner and co-founder of Index Ventures.

How to Evaluate an Offer from a Startup Incubator

The Startup Lawyer

If an incubator offers your startup $25,000 in exchange for 6% equity, the pre-money valuation is a whopping $391,667. Rather than assign a monetary value to the intangibles, a startup should instead assign an equity percentage value to intangibles like mentorship. As equity in the company tends to be the currency of early stage startups, the startup should have a good foundation for assigning value in terms of equity.

The Equity Equation

The Equity Equation. As this nuclear winter of venture hacks continues, I thought you might enjoy our thoughts on Paul Graham’s The Equity Equation. ” Read the rest of The Equity Equation first; it is great. You have to pay market rates regardless of the equity equation. You have to pay market rates regardless of the equity equation. And you have to pay a market rate no matter what the equity equation says. The Option Pool Shuffle.

Should You Share Equity with Consultants?

Should You Share Equity with Consultants? To grow his cash-strapped start-up, Parker ended up sharing equity -- not only with employees, but also with consultants and vendors. Parker found that equity as compensation helped build loyalty to his company -- even among consultants. Nevertheless, he finds that equity is generally "a great tool to use before you can line up enough cash to pay people.". But sharing equity can have pitfalls, too. ); Login or signup.

What to expect before accepting the offer to become Engineer #1 at a startup

The Next Web

In exchange, the engineer is likely offered the promise that his or her option shares will one day turn into big money. Quite frankly, waiting provides more assurance around employment risk without the commensurate sacrifice in equity comp. “It kinda sucks to be engineer #1.”.

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

The Next Web

From Silicon Valley to Peoria, Illinois, cash-strapped startups look for inventive way to finance their business – often handing out equity to employees, consultants, vendors, and other service providers. Pitfalls in sharing equity. Tips for compensating with equity.

Changing Equity Structures for Early Startup Employees

Changing Equity Structures for Early Startup Employees Tweet Recently someone asked me for advice on how much equity they should give to their early employees. I recognize that it’s challenging to give much more than the accepted guidelines on equity to early startup employees.

Dear elizy: How should I split equity with my co-founders?  And how will that affect raising a seed round?


We are trying to decide how much equity to allocate to each person. I would like to split the equity equally, since it seems only fair. But, Ada wants to split the equity 50% her, 20% Bob and 20% me with a 10% option pool. Former co-founders who have contributed about 1-2 years of vesting typically end up with ~10-15% equity since they didn’t vest their full potential. Dear elizy : I started a company in school with two co-founders.

The Dilution Concern for Founders

Recent Buzzes - VC Experts, Inc.

That is, the earliest stage investors (the founders and angels) hold very small equity percentages and garner similarly small returns on their investment in the company. This is not chopped liver, but it is a percentage that suffers by comparison to the employee option pool, for example.

When The VC Asks: About Your Hiring Plan

Hunter Walker

I recommend to founders that if there’s a unicorn you need who isn’t on founding team, (a) start identifying those people in advance of fundraising and (b) prepare to compensate them generously via equity. For an investor this can be a red flag unless you have proven experience building up high quality team quickly or clear access to large talent pools that will want to work with you for some reason (the tech is so cool; you’ve got brand heat; etc).

Quick & Dirty How-To: Employee Stock Option Allocations

A great question came up recently in discussion with one of First Round's CEOs: how much equity should I allocate for hiring my next round of employees? For a company that has raised a first institutional round of capital, this question is important not only when making competitive job offers, but also when calculating what size option pool the company will need before raising the next round of capital. Most option grants are near the bottom of the ranges.

How to pick a co-founder

Breakups are hard If you’re going to fall out with your co-founder, do it early, recover the equity into the option pool to keep the company going, and recruit someone else great to fill the missing slot. Venture Hacks Good advice for startups.

Twitter Link Roundup #202 – Small Business, Startups, Innovation, Social Media, Design, Marketing and More

crowdSPRING Blog

Model Equity Calculator for Founders with Option Pool Expansion – It’s time to rethink startup equity – GigaOM –

Cap Table Clean Up


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. VCs in particular typically insist on a slug of available options counting in the pre-money share total as they do not want to be diluted later by the issuance of those options. times more equity than Founder X.

Angel Investing at Today's Market Rates is a Losing Proposition


Dilution via option pools is also in the model, although we estimated the numbers based on our own experience. The CBinsights database is made mostly up of companies who have done equity rounds.

Anatomy of a Term Sheet: Conversion and Anti-dilution

VC Ready Blog

NOTE: This is the sixth post in our series about standard terms in early stage equity financings. Optional Conversion and Mandatory Conversion. Preferred stock typically converts to common stock either: (a) at the option of the stockholder (“Optional Conversion”); or. (b) The formula could be made broader by, for instance, including all shares of common stock that may be issued out of the company’s option pool (not just those covering option already granted).

How does funding work? Angel & VC investment in Nordic startups by the numbers


The advantage with government funding is that they often are without giving away any equity. With the valuation ‘set’ the equity given to an early investor or investors is often a question of how much money is needed to reach the next stage. million, for 20 percent of the equity.

How to Fund a Startup

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. It costs you a little more equity, but being able to play the two firms off each other (as well as ask one if the other is being out of line) is invaluable. So after this the option pool is down to 13.7%). [ unvestedoption pool 264 13.5 - --total 1950 100 This picture is unrealistic in several respects.

Founders versus early employees

Table 1: Options Grants in Silicon Valley for Series A from VentureHacks The numbers from VentureHacks are guidelines. They are rough estimates.Any one have sample option grants in Canada? I would assume that they are very similar but given the lower valuations and this may change the salary/options mix. link] boris I would hope that most early employees are forgoing some of their salary in exchange for a larger equity chunk, and to help with early stage cash flow.

How to Raise Money as a First Time Founder

The Next Web

You’ll hear terminology getting bandied about left and right about things like convertible notes, capped vs. uncapped, stock option pools, board observer rights, maturity dates, priced equity.