A VC : Venture Capital and Technology

MAY 18, 2011

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 Pool 163

Option Pool Finance Pre-Money Valuation Salary 163

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.

Option Pool 76

Option Pool Dilution Pre-Money Valuation Valuation 76

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.

Option Pool 74

Option Pool Dilution .Net Term Sheet 74

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.

Cap Table 140

Cap Table CTO Option Pool Hiring 140

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.

Option Pool 65

Option Pool Liquidation Preference Private Equity New York City 65

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.

Term Sheet 43

Term Sheet Option Pool Liquidation Preference Los Angeles 43

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?

CTO 345

CTO Equity Seed Stage Salary 345

Early Growth Financial Services

JUNE 26, 2014

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.

Option Pool 80

Option Pool Pre-Money Valuation Dilution Valuation 80

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.

Equity 87

Equity Option Pool Pre-Money Valuation Dilution 87

A VC : Venture Capital and Technology

DECEMBER 19, 2016

One of those three partners, Bliss McCrum, peeked his head into my office (I had an office in Rockefeller Center at age 25) and said to me, “Can you model out a financing for XYZ Company at a $9 million pre-money, raising $3 million, with an unissued option pool of 10%?” I thought I could figure out the “unissued option pool of 10%” bit. This was almost a decade before Netscape and Internet search so searching online for it wasn’t an option.

Venture Capital 175

Venture Capital Option Pool San Francisco Participating Preferred 175

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%.

Option Pool 158

Option Pool Equity Valuation Finance 158

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.

Equity 110

Equity Option Pool Stock Options Stock 110

Ask The VC

AUGUST 23, 2011

The LearnVC site has a bunch of other interactive examples for some of the basics of venture financing including: Option Pool Creation. A few days ago I answered a question on AsktheVC about modeling cap tables. After a quick email conversation with Jeff Boardman (founder of LearnVC ), I realize I had left his product off the list.

Cap Table 167

Cap Table Dilution Ratchet Liquidation Preference 167

Ask The VC

JANUARY 13, 2012

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

Vesting 156

Vesting Dilution Option Pool Equity 156

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.

Term Sheet 62

Term Sheet Vesting Liquidation Preference Option Pool 62

Ask The VC

AUGUST 3, 2011

If you get confused about how much you might own after the pre-money, post-money math and option pool (issued and unissued) calculation runs through the cap table, along with being perplexed on how to actually calculate price per share in a complicated financing, this is the chapter for you. Now is your chance to show off their proficiency with a spreadsheet.

Capitalization Table 138

Capitalization Table Cap Table Term Sheet Option Pool 138

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.

Founder 146

Founder Option Pool Vesting Equity 146

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.

Dilution 197

Dilution Option Pool Post-Money Valuation Pre-Money Valuation 197

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.

Pre-Money Valuation 79

Pre-Money Valuation Option Pool Stock Options Valuation 79

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.

Valuation 278

Valuation Term Sheet Liquidation Preference Founder 278

Inc Startups

MAY 7, 2014

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. This is silliness, he says, because boards can increase option pools whenever they want.

Vesting 70

Vesting Option Pool Equity Stock 70

Inc Startups

JULY 24, 2013

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.

Option Pool 80

Option Pool Term Sheet Widget Venture Capital 80

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.

Churn Rate 262

Churn Rate Due Diligence Option Pool Term Sheet 262

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.

Valuation 103

Valuation Post-Money Valuation Pre-Money Valuation Option Pool 103

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.

Equity 271

Equity Founder Sweat Equity Common Stock 271

VC Ready Blog

JUNE 22, 2010

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.

Term Sheet 35

Term Sheet Option Pool Pre-Money Valuation Valuation 35

VC Ready Blog

JUNE 22, 2010

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.

Term Sheet 35

Term Sheet Option Pool Pre-Money Valuation Valuation 35

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.

Cap Table 97

Cap Table Option Pool Angel Investor Germany 97

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.

Equity 70

Equity Option Pool Vesting Valuation 70

UC Berkeley

MARCH 7, 2015

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.

Term Sheet 43

Term Sheet Pre-Money Valuation Option Pool Valuation 43

Leveraging Ideas

MAY 20, 2011

Sizing Option Pools In Connection With Financings. Infographic: A Look At The Size And Shape Of The Geosocial Universe In 2011. May 20, 2011. Founder Stories) Hashable’s Yavonditte: Being Lean Does Not Mean Staying Small. May 19, 2011. Simplee Makes Your Medical Bills Understandable.

Curation 67

Curation Option Pool IPO Lean 67

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

Early Stage 394

Early Stage Equity Employee Sweat Equity 394

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.

Equity 264

Equity Cofounder Founder Sweat Equity 264

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.

Stock Options 54

Stock Options Stock Equity Option Pool 54

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.

Founder Vesting 70

Founder Vesting Vesting Option Pool Institutional Investors 70

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.

Term Sheet 56

Term Sheet Pre-Money Valuation Liquidation Preference Option Pool 56

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.

Cap Table 57

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 57

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.

Cap Table 46

Cap Table CTO Option Pool Finance 46

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.

Founder Vesting 56

Founder Vesting Vesting Option Pool Institutional Investors 56

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.

Valuation 48

Valuation Balance Sheet Option Pool Dilution 48

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.

Equity 193

Equity Cofounder Founder Sweat Equity 193

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.”.

Dilution 86

Dilution Engineer Vesting Option Pool 86

Recent Buzzes - VC Experts, Inc.

FEBRUARY 23, 2011

This is not chopped liver, but it is a percentage that suffers by comparison to the employee option pool, for example. For founders who are also part of the management team, participation in the employee option pool is of some help. By Joseph W.

Dilution 56

Dilution Option Pool Prospectus Liquidity Event 56