I have posted a few times on management carve out plans (back in February 2011 and November 2011; wow, time flies!!).
Our portfolio companies routinely adopt carve out plans when the founders/employees equity values are not likely to provide enough incentive to get a company to an exit. This typically results when the company has raised a lot of money and the preferred stock liquidation preference would absorb an out sized portion of the exit proceeds. It can also result from straight forward dilution. Regardless, I am a big fan of carve out plans. There is just no way to get a good exit without a motivated management team and employee base.
Some great carve out plan materials were recently shared with me so I thought best to “memorialize” them in a blog post. Law firms often make startup “legal issues” materials available to help management teams better understand the startup landscape. So, thanks to Fenwick & West for putting these together. The first (Carving Up the Pie Using Change in Control Carve-Out Plans to Incentiviz… ) is a very well written memo on carve out plans in general. The second (Liquidity_Bonus_Plan_-_Board_Meeting_Slides) is a power point presentation that a startup board might review when adopting a plan. I am not giving legal advice……
Have a great weekend.