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The Option Pool Shuffle

venturehacks.com

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.

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.

Introducing the Cap Table and Hiring the CTO

Feld Thoughts

This week they set out to create their cap table and hire a CTO. As first time entrepreneurs they did not create an employee options pool; we’ll fix that in a little while. They come up with two options: Hire Praveena as an employee and offer her stock options. The benefit of hiring Praveena is they think they could keep more equity and control of the company. Finance Fridays 83(b) cap table cto finance fridays option pool

When The VC Asks: About Your Hiring Plan

Hunter Walker

Whether it’s adding capacity to an existing function (#MawrEngineers) or bringing new talents onboard (“we intend to make our first marketing hire”), glossing over these bullet points towards the back of the pitch deck would be a mistake. I’m interested in not just what these people will be doing but how and when they’ll be hired. So when Homebrew asks about your hiring plan, here’s what I’m often looking for: Unicorns Needed? Do You Know Who You’re Hiring?

Equity for Early Employees in Early Stage Startups

SoCal CTO

For your first key hires, three, five, maybe as much as ten, you will probably not be able to use any kind of formula. For example, suppose you're just two founders and you want to hire an additional hacker who's so good you feel he'll increase the average outcome of the whole company by 20%.

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.

Viva La Revolucion! AngelList goes into Hyperdrive

Fred Destin

Some VentureHacks posts are today mentioned like religious scriptures by entrepreneurs, such as Nivi''s 2007 Option Pool Shuffle. Viva La Revolucion !

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

The Next Web

They were referring to non-founder engineers, most commonly the first hire for technology businesses. In exchange, the engineer is likely offered the promise that his or her option shares will one day turn into big money. “It kinda sucks to be engineer #1.”.

Quick & Dirty How-To: Employee Stock Option Allocations

Christine.net

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.

CMO CTO COO Equity and Compensation

SoCal CTO

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

How to pick a co-founder

venturehacks.com

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. Geeks can always be hired. Venture Hacks Good advice for startups.

How to Divide Equity to Startup Founders, Advisors, and Employees

thinkspace.com

Chris Dixon wrote a blog post about “ The one number you should know about your equity grant “ The one number you should know about your equity grant is the percent of the company you are being granted (in options, shares, whatever – it doesn’t matter – just the % matters).

In VC deals, Price Doesn't Matter - But The "Promote" Does

Seeing Both Sides

Another term that impacts the price is the size of the option pool. Most VCs invest in companies that need to hire additional management team members and sales and marketing and technical talent to build the business. These new hires typically receive stock options, and the issuance of those stock options dilute the other investors. We put forward a “6 on 7” deal with a 20% option pool.

Everything you ever wanted to know about advisors, Part 1

venturehacks.com

This is the advisor paradox : hire advisors for good advice but don’t follow it, apply it. Your task is to hire the maverick advisors in the crowd. Hiring advisors is an ongoing effort. Then hire him if you like the results. The Option Pool Shuffle. Venture Hacks Good advice for startups. SPONSORED BY. Products. Archives. venturehacks. Books. AngelList. About. ← Trust, but verify: Why investors want control. T-Shirts for VCs → -->.

The Right Way to Grant Equity to Your Employees

Inc Startups

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. This pool should be reserved for non-executives.

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. 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.

How to Fund a Startup

www.paulgraham.com

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. For example, a seed firmshould be able to give advice about how to approach VCs, which VCsobviously dont need to do; whereas VCs should be able to giveadvice about how to hire an "executive team," which is not an issuein the seed stage. So after this the option pool is down to 13.7%). [

Options

Chris Dixon

The most common types of derivatives are futures – the obligation to buy a security at a future date at pre-agreed upon price – and options – the right to buy something at a future date at pre-agreed upon price. Valuing options was a mystery until 1973 when the Black-Scholes model was invented. The main practical outcome of this model was the idea that the value of an option was determined mostly by the volatility of the underlying security.

Memo to CEOs & Founders: Stop Being Such Cheap Bastards

techcrunch.com

You could make the same argument about acquisitions and option pools. Why aren’t we surprised when three months later that company can’t hire enough engineers? The 3-person executive team, including a CEO if one was hired, owns 10%, and splits $3.6 Now consider what would happen if the same company raises another $10 million, expands the employee option pool to hire more executives and to support 300 people.

Startup Equity For Employees

www.payne.org

5 Stock vs Options. 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. NOTE: If youre an attorney or tax accountant with experience helping startup employees with stock and option issues, drop me a note. Stock vs Options. At that point, you would be an official stock holder with 25,000 shares and 75,000 unvested options.

Founders versus early employees

www.startupnorth.ca

Being an early hire at a startup gives an individual the ability to make tremendous impact on an organization as it grows – and both the founders and those hires should know it.” As Naval points out that you still need to pay employees market rates , but with all employees you need to ask yourself “whether she [a new hire] is likely to increase the next round’s share price”. They are rough estimates.Any one have sample option grants in Canada?

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

ArcticStartup

With the investments, the VC also made sure that a 10 percent option pool was set aside, in order to attract experienced senior management for key positions, as well as a reward for early employees.

The Things I Wish I Could’ve Told Young Mr Fishkin | Rand Fishkin, Moz | BoS EU 2016

Business of Software Blog

There’s a number of frustrations that I have around this, one of the biggest ones is that I have a hard time hiring and identifying great engineers, early in my career. But early on, I made plenty of mistakes in hiring including in leadership and junior roles, all across the board.

A Compilation of the Web's Best Advice for Entrepreneurs

Platforms and Networks

Rose is CEO of AngelSoft, a platform that provides web-based planning tools for angel investors and entrepreneurs (NEW 11/29) Marc Andreessen on how much money to raise -- and how much is too much (NEW 11/29) Atlas VC Fred Destin on what not to disclose to a VC when raising money (NEW 11/30) Equity simulator from OwnYourVenture that calculates impact on % ownership by round of $ raised, size of option pool, etc.

VC Fundraising: CEO's role

Startup Economy

valuation will be driven down due to the additional risks of hiring the top leadership option pool needs to be carefully assessed to have something attractive enough for the incoming CEO VCs want to keep the founders around. While this may be a big win for startup, hiring someone who fits into the culture, team dynamics, etc. hiring a good CEO to execute within the existing culture and idea is too difficult.

Anatomy of a Term Sheet: Nature of a Term Sheet and Summary of Offering Terms

VC Ready Blog

Second, the employee option pool is typically set at 15-20% of a company’s fully-diluted post-money capitalization at the time of a Series A financing, though it is sometimes set as low as 10% or as high as 25%. The principal factor in determining the size of the pool should be the need to incentivize current and future employees, so a company with a strong core team already in place should not need as large a pool as a company that expects to hire a new CEO in the near future.

Anatomy of a Term Sheet: Nature of a Term Sheet and Summary of Offering Terms

VC Ready Blog

Second, the employee option pool is typically set at 15-20% of a company’s fully-diluted post-money capitalization at the time of a Series A financing, though it is sometimes set as low as 10% or as high as 25%. The principal factor in determining the size of the pool should be the need to incentivize current and future employees, so a company with a strong core team already in place should not need as large a pool as a company that expects to hire a new CEO in the near future.

Startup Administrivia: Part 1 – getting started

Startup Musings

Hiring professional service providers. Hiring professional service providers. The easiest thing to do is to hire a corporate attorney to do it for you. You need it immediately if you are incorporating with more than 1 founder, and you definitely need it when you raise your first round, or when you need to define an option pool for new employees. Hire a contract accountant who can set you up with Quickbooks.

Best Practices Series Wrap-Up: All About Term Sheets

UC Berkeley

Although the standard option pool (to incent key hired) is typically 20%, this is one of a few areas where there is wiggle room for negotiating with the VCs. “Never ask for a VC meeting on Monday…total rookie mistake,” said Mintz Levin’s Brady Berg and VantagePoint Capital Partners’ Neil Wolff. Because that’s the day partners’ meetings are scheduled. Here are five other notable quotes and practical tips from their hands-on BPS earlier this month.

some thoughts on term sheets

Seed Stage Capital

In almost every instance, I need to talk the founders into plugging in lower amounts for themselves, and higher amounts for key outside hires-- VP of Sales, VP Engineering, etc. 2: The option pool. of the company to incentivize new hires.

The Future of Startup Funding

www.paulgraham.com

In effect, this structure gives the investora free option on the next round, which theyll only take if itsworse for the startup than they could get in the open market.Tranched deals are an abuse. Even the cheap kinds of startups will generally raise large amountsat some point, when they want to hire a lot of people. 13 ]Im not saying option pools themselves will go away. Want to start a startup? Get funded by Y Combinator.

Growth & Arrogance vs. The Power of a Customer Centric Culture | Art Papas, Bullhorn | BoS USA 2015

Business of Software Blog

And I liked medicine and I love the idea of being a doctor, but I also took a course called the calculus 13, which was like optional calculus. But for us it was because we had spent money, we had hired a lot of people and we had spent it and remember, we didn’t know what we wanted to be when we grew up and we had little less than $1 million in the bank and this is a slide from the board meeting. I actually do a lot of new hire training.

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

venturehacks.com

Advisor compensation Whether you’re hiring a normal advisor or super advisor: Advisory shares are usually issued as common stock options. The options typically vest monthly over 1-2 years with 100% single-trigger acceleration and no cliff.

Startups: Cut the Wheat from the Chaff on Quora

VC Cafe

How do bootstrapped companies hire talent? Instead of a 20% option pool, we created a 40% option pool, and gave out half of it to the first half-dozen hires who came on and were willing to work without salary for a period of time, forming the core team.

Beware of Premature Merge Elation

Both Sides of the Table

But to be clear the overwhelming majority of deals involve one company driving the cultural integration, establishment of uniform processes, hiring / firing decisions, etc. If they raise a bunch of capital little ole you isn’t going to be around to have your option pool topped up.

How to Find the Perfect Startup Job: Part IV "Negotiating the Startup Offer"

Genuine VC

This post doesn’t going into general tactical approaches of job offer negotiation, but rather focuses on the fact that with startups a significant part of compensation is related to equity or options. So optimizing a startup offer involves not just one key figure – salary – but also the option package. Nearly all startup employees receive a number of options figure in their offer.

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

The Next Web

Seen in this light, it seems harmless enough to dole out some paper shares or options to get critical services that will take your business to the next level. Many young tech startups reserve 15%-20% for employee stock options.

Post-close

Will Price

Develop a linked monthly income statement, cash flow, and balance sheet model that specifies, among other variables: Key assumptions regarding bookings, revenue recognition, gross margin, op ex by department, headcount hires and cost per hire, rent, benefits, T&E, IT costs, programmatic marketing spending, cash, accounts receivable, payables, deferred revenue, capital expenditures, etc Develop a compensation and incentive plan Incentives drive behavior.

Using warrants to pump up your VC valuation

www.mattbartus.com

You have a 20% option pool, so you know this will take your ownership down from 80% to 60%, and the VC will get 25%. Option Pool. an option to purchase shares in the future at a pre-determined price) to the investor to purchase preferred stock at the Series A price.