INDUSTRY INSIGHTS YOUR PEERS ARE READING
But employee option pool is important enough that I wanted to briefly expand upon my comment above. Since Homebrew typically leads/co-leads seed rounds, we assist in helping founders design and manage their pool against their hiring forecast. MORE
For example, he will explain to you how the liquidation preference works and run spreadsheets, if necessary, to show you how much money you will receive based on different sale scenarios; he will explain to you how the option pool works, including the founders’ significant dilution; and he will discuss what protective provisions are and other tricky legal terms, such as drag-along rights and anti-dilution provisions. MORE
You don’t really need to worry about how much common stock will be set aside for an employee option pool or how much preferred stock might be issued from raising future VC rounds in order to determine an equitable founder stock division. MORE
Option pool: 500,000 shares (some issued, some reserved, but that is typically irrelevant as the whole pool is normally factored into the premoney share price calculation). So, to calculate the Series A share price, you take the premoney valuation of $3mm and divide it by the number of premoney shares, which again will typically include the whole option pool. MORE
Now … these are stock options and not restricted stock so you’ll likely be taxed at a long-term capital gains rate. Stock options are the icing on the cake. Don’t join for the options.&#. This is part of my Startup Advice series. MORE
Note: if the option pool has been increased between rounds this will have the effect of reducing the increase in share price and should be factored into the analysis. We’ve just been writing an update for investors about the progress our partner companies have been making. MORE
The former is nice because you won’t be rushing to approve minutes, option grants, lease approvals or whatever else it is that you need done as “official business.” There are, of course, some items that the board has specific decision making authority over (buying another company, increasing the option pool, signing leases of a certain size, etc.). This is the 4th post in my Designing the Ideal Board Meetin g series. MORE
Reserve 10-20% Of Your Company’s Outstanding Equity For A Stock Option Plan. It is critical for a start-up to consider this reality and reserve 10-20% of its outstanding equity for a stock option plan. Most sophisticated investors will require a stock option pool upon investment, and a company that fails to reserve a sufficient amount of equity up-front runs the risk of being forced to establish a pool at a later date that may dilute the founders’ ownership. MORE
So, for example, taking a not-uncommon streamlined case of a company that had a seed round, a Series A and a Series B before being acquired (and for the purposes of this exercise disregarding any option pool), the math for a single-founder’s ownership of a startup would work like this based on giving up 20% each round: After Founding: 100%. MORE
And then there are options: [Email readers, continue here…] Stock options or phantom stock are the tools of early stage businesses used to attract great talent when there is not enough cash to pay market rates. a share, then options must be priced at that amount. MORE
Every corporate transaction you’ll do will require somebody to help you to: Think through the options, negotiation terms, get other investors on board, talk with new investors/partners/companies you’re acquiring, etc. Collecting logos. MORE
But, Ada wants to split the equity 50% her, 20% Bob and 20% me with a 10% option pool. Dear elizy : I started a company in school with two co-founders. Let’s call them Ada and Bob. Ada is my professor, and we are using her lab, and the company is based on her research, though the IP is assigned to the company. Bob and I were her students and will be graduating this year. MORE
More often than not, these companies have no formal option pool, although many have either formal or informal promises to grant options to key employees. Neil Rimer is a Partner and co-founder of Index Ventures. MORE
We have taken their feedback and tweaked the termsheet as appropriate with the result that on all terms bar valuation, option pool and details of founder vesting our termsheet is now, in effect, very close to fully negotiated before we send it to companies. MORE
I also had to negotiate a follow-on round at a portfolio company because new investors were trying to force a bit option-pool top-up that would dilute the founders and existing shareholders and existing investors were fighting over prorata rights. MORE
Wilson Sonsini and DFJ Gotham Ventures : The Option Pool Shuffle : Title Range (%) CEO 5 – 10 COO 2 – 5 VP 1 – 2 Independent Board Member 1 Director 0.4 – 1.25 MORE
We have taken their feedback and tweaked the termsheet as appropriate with the result that on all terms bar valuation, option pool and details of founder vesting our termsheet is now, in effect, very close to fully negotiated before we send it to companies. MORE
Raising funds from business angels may be difficult, time consuming and even frustrating but for the right founder with the right project it may be the preferred option. 10 Steps to Success With Angel Investors. MORE
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. MORE
In exchange, the engineer is likely offered the promise that his or her option shares will one day turn into big money. Startup employees are granted common shares out of something called an option pool. “It kinda sucks to be engineer #1.”. MORE
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. MORE
Valuation, Size of Raise, Amount of Investment, Form of Investment, Liquidation Waterfall, Option Pool, Board Composition, Anti-Dilution Rights, Protective Provisions, Founder Vesting, *original post can be found on Quora @ : [link] *. Characteristics of the Entrepreneur. Integrity, Passion, Startup Experience, Domain Expertise, Functional Skills, Leadership, Commitment, Vision, Pragmatism, Flexibility, Personality. Characteristics of the Venture. MORE
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. When you do, my 20% becomes 15% and thus my true price for your round is actually higher than it appears when I invested because I already know I’m going to face more dilution for options. MORE
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. The bottom line is that the very question you are asking is one of the trickiest things of all when it comes to startup founding. MORE
Despite all the hype in the press (including with respect to the latest ICO craze), raising funds for your startup is still tough – particularly if you’re not located in San Francisco or Silicon Valley. MORE
Another term that impacts the price is the size of the option pool. These new hires typically receive stock options, and the issuance of those stock options dilute the other investors. In anticipation of those hiring needs, many VCs will require that an option pool with unallocated stock options be created prior to the money coming in, thereby forming a stock option budget for new hires that will not require further dilution after the investment. MORE
You don’t really need to worry about how much common stock will be set aside for an employee option pool or how much preferred stock might be issued from raising future VC rounds in order to determine an equitable founder stock division. MORE
You have looked at the advantages and disadvantages, and have decided it is the best option for your startup. You also need to think about how much equity you want to have set aside and available for your future employees in your option pool. MORE
You don’t really need to worry about how much common stock will be set aside for an employee option pool or how much preferred stock might be issued from raising future VC rounds in order to determine an equitable founder stock division. MORE
Note how the new CTO Praveena implicitly negotiated to get her 15% founders shares after creation of the stock option pool. This is significant because Jane and Dick took all the dilution from the option pool creation. Options and warrants also each need a separate tab and they are each also reflected on the combined tab. It is all about detail and reflecting changes (like additional option grants) on a timely basis. MORE
To find the equity numbers that were relevant for the particular person here, I went back through my prior post and looked at Wilson Sonsini and DFJ Gotham Ventures The Option Pool Shuffle Employee Equity How Much How much equity for investors and employees? MORE
If they raise a bunch of capital little ole you isn’t going to be around to have your option pool topped up. There is a telltale sign of an inexperienced startup entrepreneur. They get premature merge elation. MORE
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). Building a senior team but pushing back on having a healthy employee option pool? “Growing the team” is almost always one of the ways entrepreneurs utilize new investment dollars. MORE
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. MORE
I’m not sure I really even need to write this at length because Nivi absolutely nailed the topic in his article “ The Option Pool Shuffle.&#. I had several term sheets and one of the leading term sheets had an option pool of 40% in it. MORE
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. MORE
It could be the size of the option pool, or maybe the provisions around reverse vesting. 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. MORE
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. MORE
In one instance, I told a CEO that we typically recommend a 15 percent stock options pool at seed/Series A stage. Andrej Kiska is an associate at Credo Ventures. MORE
Other incubators may want to set up an option pool. If so, the startup’s founders need to know this option pool lowers your pre-money valuation. Using the previous example, if an incubator wants your startup to set up a 15% option pool as part of the $25,000 for 6% of the company, the pre-money valuation gets effectively reduced to $329,167. Great news — your startup just got accepted to an incubator! MORE
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. Now there are two events: the initial issuance of founders common shares, and then issuing new founders common shares along with creating an options pool. If the full pool were to be given out, the dilution is fairly significant to the founders. MORE
Indeed, there comes a point in time in just about every deal where both sides have dug into certain positions and the question becomes which side will blink first; for example, in a venture capital financing, perhaps the issue is the liquidation preference or the size of the option pool ; or, in an acquisition, perhaps the issue is the cap on seller’s liability or the amount of the escrow. MORE
Terms like the option pool , liquidation preference , and board composition are just a few other investment terms that have a meaningful impact on your startup. You’ll feel real solid about that $6,000,000 pre-money until you receive the term sheet and it specifies a 25% option pool, 1X participating liquidation preference, and an investor-favorable board. MORE
You could make the same argument about acquisitions and option pools. 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. This is an anonymous guest post from a well known startup executive: When we split the atom, Einstein remarked that everything changed but our way of thinking. MORE
Option Pool Related Topics venturehacks.com
OCTOBER 21, 2010
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.
Rob Go
JUNE 17, 2014
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.
Feld Thoughts
SEPTEMBER 2, 2011
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. Now there are two events: the initial issuance of founders common shares, and then issuing new founders common shares along with creating an options pool. If the full pool were to be given out, the dilution is fairly significant to the founders.
Scott Edward Walker
JULY 20, 2011
Indeed, there comes a point in time in just about every deal where both sides have dug into certain positions and the question becomes which side will blink first; for example, in a venture capital financing, perhaps the issue is the liquidation preference or the size of the option pool ; or, in an acquisition, perhaps the issue is the cap on seller’s liability or the amount of the escrow.
Scott Edward Walker
AUGUST 31, 2011
For example, he will explain to you how the liquidation preference works and run spreadsheets, if necessary, to show you how much money you will receive based on different sale scenarios; he will explain to you how the option pool works, including the founders’ significant dilution; and he will discuss what protective provisions are and other tricky legal terms, such as drag-along rights and anti-dilution provisions.
SoCal CTO
NOVEMBER 14, 2012
To find the equity numbers that were relevant for the particular person here, I went back through my prior post and looked at Wilson Sonsini and DFJ Gotham Ventures The Option Pool Shuffle Employee Equity How Much How much equity for investors and employees?
Gust
AUGUST 30, 2012
Valuation, Size of Raise, Amount of Investment, Form of Investment, Liquidation Waterfall, Option Pool, Board Composition, Anti-Dilution Rights, Protective Provisions, Founder Vesting, *original post can be found on Quora @ : [link] *. Characteristics of the Entrepreneur. Integrity, Passion, Startup Experience, Domain Expertise, Functional Skills, Leadership, Commitment, Vision, Pragmatism, Flexibility, Personality. Characteristics of the Venture.
Hunter Walker
AUGUST 7, 2017
But employee option pool is important enough that I wanted to briefly expand upon my comment above. Since Homebrew typically leads/co-leads seed rounds, we assist in helping founders design and manage their pool against their hiring forecast.
The Next Web
SEPTEMBER 30, 2014
In one instance, I told a CEO that we typically recommend a 15 percent stock options pool at seed/Series A stage. Andrej Kiska is an associate at Credo Ventures.
Both Sides of the Table
JUNE 5, 2015
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. When you do, my 20% becomes 15% and thus my true price for your round is actually higher than it appears when I invested because I already know I’m going to face more dilution for options.
Gust
SEPTEMBER 13, 2012
So, for example, taking a not-uncommon streamlined case of a company that had a seed round, a Series A and a Series B before being acquired (and for the purposes of this exercise disregarding any option pool), the math for a single-founder’s ownership of a startup would work like this based on giving up 20% each round: After Founding: 100%.
Both Sides of the Table
JULY 22, 2010
I’m not sure I really even need to write this at length because Nivi absolutely nailed the topic in his article “ The Option Pool Shuffle.&#. I had several term sheets and one of the leading term sheets had an option pool of 40% in it.
Both Sides of the Table
MAY 9, 2018
I also had to negotiate a follow-on round at a portfolio company because new investors were trying to force a bit option-pool top-up that would dilute the founders and existing shareholders and existing investors were fighting over prorata rights.
The Equity Kicker
APRIL 10, 2015
Note: if the option pool has been increased between rounds this will have the effect of reducing the increase in share price and should be factored into the analysis. We’ve just been writing an update for investors about the progress our partner companies have been making.
Gust
NOVEMBER 8, 2012
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. The bottom line is that the very question you are asking is one of the trickiest things of all when it comes to startup founding.
View from Seed
DECEMBER 4, 2014
You don’t really need to worry about how much common stock will be set aside for an employee option pool or how much preferred stock might be issued from raising future VC rounds in order to determine an equitable founder stock division.
VC Adventure
NOVEMBER 1, 2018
The former is nice because you won’t be rushing to approve minutes, option grants, lease approvals or whatever else it is that you need done as “official business.” There are, of course, some items that the board has specific decision making authority over (buying another company, increasing the option pool, signing leases of a certain size, etc.). This is the 4th post in my Designing the Ideal Board Meetin g series.
The Next Web
OCTOBER 21, 2013
More often than not, these companies have no formal option pool, although many have either formal or informal promises to grant options to key employees. Neil Rimer is a Partner and co-founder of Index Ventures.
Early Growth Financial Services
DECEMBER 4, 2014
It could be the size of the option pool, or maybe the provisions around reverse vesting. 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 Equity Kicker
OCTOBER 8, 2014
We have taken their feedback and tweaked the termsheet as appropriate with the result that on all terms bar valuation, option pool and details of founder vesting our termsheet is now, in effect, very close to fully negotiated before we send it to companies.
Agile VC
DECEMBER 4, 2014
You don’t really need to worry about how much common stock will be set aside for an employee option pool or how much preferred stock might be issued from raising future VC rounds in order to determine an equitable founder stock division.
Business Plan Blog
NOVEMBER 20, 2013
You have looked at the advantages and disadvantages, and have decided it is the best option for your startup. You also need to think about how much equity you want to have set aside and available for your future employees in your option pool.
The Equity Kicker
OCTOBER 8, 2014
We have taken their feedback and tweaked the termsheet as appropriate with the result that on all terms bar valuation, option pool and details of founder vesting our termsheet is now, in effect, very close to fully negotiated before we send it to companies.
Business Plan Blog
SEPTEMBER 18, 2012
Reserve 10-20% Of Your Company’s Outstanding Equity For A Stock Option Plan. It is critical for a start-up to consider this reality and reserve 10-20% of its outstanding equity for a stock option plan. Most sophisticated investors will require a stock option pool upon investment, and a company that fails to reserve a sufficient amount of equity up-front runs the risk of being forced to establish a pool at a later date that may dilute the founders’ ownership.
Seeing Both Sides
JULY 15, 2009
Another term that impacts the price is the size of the option pool. These new hires typically receive stock options, and the issuance of those stock options dilute the other investors. In anticipation of those hiring needs, many VCs will require that an option pool with unallocated stock options be created prior to the money coming in, thereby forming a stock option budget for new hires that will not require further dilution after the investment.
Berkonomics
SEPTEMBER 28, 2017
And then there are options: [Email readers, continue here…] Stock options or phantom stock are the tools of early stage businesses used to attract great talent when there is not enough cash to pay market rates. a share, then options must be priced at that amount.
The Next Web
OCTOBER 7, 2013
In exchange, the engineer is likely offered the promise that his or her option shares will one day turn into big money. Startup employees are granted common shares out of something called an option pool. “It kinda sucks to be engineer #1.”.
The Startup Lawyer
JANUARY 10, 2011
Terms like the option pool , liquidation preference , and board composition are just a few other investment terms that have a meaningful impact on your startup. You’ll feel real solid about that $6,000,000 pre-money until you receive the term sheet and it specifies a 25% option pool, 1X participating liquidation preference, and an investor-favorable board.
ithacaVC
DECEMBER 13, 2013
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.
Agile VC
DECEMBER 4, 2014
You don’t really need to worry about how much common stock will be set aside for an employee option pool or how much preferred stock might be issued from raising future VC rounds in order to determine an equitable founder stock division.
SoCal CTO
SEPTEMBER 27, 2011
Wilson Sonsini and DFJ Gotham Ventures : The Option Pool Shuffle : Title Range (%) CEO 5 – 10 COO 2 – 5 VP 1 – 2 Independent Board Member 1 Director 0.4 – 1.25
ithacaVC
SEPTEMBER 4, 2011
Note how the new CTO Praveena implicitly negotiated to get her 15% founders shares after creation of the stock option pool. This is significant because Jane and Dick took all the dilution from the option pool creation. Options and warrants also each need a separate tab and they are each also reflected on the combined tab. It is all about detail and reflecting changes (like additional option grants) on a timely basis.
ithacaVC
JANUARY 24, 2013
Option pool: 500,000 shares (some issued, some reserved, but that is typically irrelevant as the whole pool is normally factored into the premoney share price calculation). So, to calculate the Series A share price, you take the premoney valuation of $3mm and divide it by the number of premoney shares, which again will typically include the whole option pool.
VC Cafe
OCTOBER 16, 2010
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.
Hippoland
APRIL 10, 2016
But, Ada wants to split the equity 50% her, 20% Bob and 20% me with a 10% option pool. Dear elizy : I started a company in school with two co-founders. Let’s call them Ada and Bob. Ada is my professor, and we are using her lab, and the company is based on her research, though the IP is assigned to the company. Bob and I were her students and will be graduating this year.
Both Sides of the Table
SEPTEMBER 1, 2011
Every corporate transaction you’ll do will require somebody to help you to: Think through the options, negotiation terms, get other investors on board, talk with new investors/partners/companies you’re acquiring, etc. Collecting logos.
Scott Edward Walker
NOVEMBER 26, 2017
Despite all the hype in the press (including with respect to the latest ICO craze), raising funds for your startup is still tough – particularly if you’re not located in San Francisco or Silicon Valley.
Both Sides of the Table
NOVEMBER 4, 2009
Now … these are stock options and not restricted stock so you’ll likely be taxed at a long-term capital gains rate. Stock options are the icing on the cake. Don’t join for the options.&#. This is part of my Startup Advice series.
Business Plan Blog
DECEMBER 26, 2013
Raising funds from business angels may be difficult, time consuming and even frustrating but for the right founder with the right project it may be the preferred option. 10 Steps to Success With Angel Investors.
The Startup Lawyer
FEBRUARY 4, 2011
Other incubators may want to set up an option pool. If so, the startup’s founders need to know this option pool lowers your pre-money valuation. Using the previous example, if an incubator wants your startup to set up a 15% option pool as part of the $25,000 for 6% of the company, the pre-money valuation gets effectively reduced to $329,167. Great news — your startup just got accepted to an incubator!
techcrunch.com
FEBRUARY 25, 2010
You could make the same argument about acquisitions and option pools. 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. This is an anonymous guest post from a well known startup executive: When we split the atom, Einstein remarked that everything changed but our way of thinking.
Both Sides of the Table
AUGUST 3, 2010
If they raise a bunch of capital little ole you isn’t going to be around to have your option pool topped up. There is a telltale sign of an inexperienced startup entrepreneur. They get premature merge elation.
Hunter Walker
MAY 7, 2014
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). Building a senior team but pushing back on having a healthy employee option pool? “Growing the team” is almost always one of the ways entrepreneurs utilize new investment dollars.
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