Startup Stock Options – Why A Good Deal Has Gone Bad

Steve Blank

For most startup employee’s startup stock options are now a bad deal. Why Startups Offer Stock Options. As Venture Capital emerged as an industry in the mid 1970’s, investors in venture-funded startups began to give stock options to all their employees.

Startup Stock Options Are Not Reliable Compensation

Startup Professionals Musings

By the way, you will normally only be offered “options,” which vest over a 4-year period after a 1-year “cliff.” Many employees forget that there isn’t even a market for stock, until after the company has gone public, which hasn’t happened positively to many companies in the last few years.

Understanding Stock Options

YoungUpstarts

In today’s start-up culture, it’s common for companies to offer employees the opportunity to own stock in the business. While most folks know the basic benefits of receiving stock, many employees are taken off guard by the tax implications that follow. Incentive Stock Option (ISO).

How Valuable Are Stock Options Offered By A Startup?

Startup Professionals Musings

By the way, you will normally only be offered “options,” which vest over a 4-year period after a 1-year “cliff.” Thus, options don’t “pay the mortgage” today, so to speak. Your compensation is the total package of stock plus salary plus benefits.

How Many Startup Stock Options are Enough?

Startup Professionals Musings

By the way, you will normally only be offered “options,” which vest over a 4-year period after a 1-year “cliff.” Many employees forget that there isn’t even a market for stock, until after the company has gone public, which hasn’t happened positively to many companies in the last few years.

A Different Approach to Refreshing Stock Option Grants

Feld Thoughts

It’s the annual bonus, next year bonus plan, option grant refresh cycle. I’ve never really understood why the majority of stock option refresh grants are stacked grants mid-way through the granting process. Assume you hire someone and grant them 10,000 options with monthly vesting of four years with a one year cliff. That means that after one year, they get 25% of their options and then start vesting the remaining options monthly at a rate of 1/48 (208.3

Advisor Stock Option Grants

The Startup Lawyer

Stock Options One asset that startups should consider taking advantage of is advisors. Luckily for startups, advisors are prevalent and can be readily found through incubators, networking and/or personal contacts. The best advisors are in it to pay it forward or give back to the startup community. If you want to take a very informal advisor relationship […].

How to Discuss Stock Options with Your Team

Both Sides of the Table

Options are gravy - I lived through the first dot com era where we used stock options as a recruiting tool. Options are obviously a very important economic motivator for your first 3-5 employees and your most senior management team. We give out stock options.

Stock options: Guard the Gold

Berkonomics

Use stock options and warrants to pay for service only rarely. Earlier, I stated that stock options are the currency of early stage business. There are times when services of others are available for stock instead of – or in addition to cash. When assessing the relative merit of using attractive non-cash forms of compensation for outside services, first be aware of the true value of your stock.

How Much Stock Should Startups Dole Out?

YFS Magazine

One of the toughest compensation-related questions that founders and executives face is that of granting stock to key employees, board members, advisors or consultants. Finance Grow employee stock options money raising capital raising startup capital stock options

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How Much Stock Would Convince You To Join A Startup?

Startup Professionals Musings

By the way, you will normally only be offered “options,” which vest over a 4-year period after a 1-year “cliff.” Thus, options don’t “pay the mortgage” today, so to speak. Your compensation is the total package of stock plus salary plus benefits.

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Stock Option Plan Rule of Thumb No. 1

Business Plan Blog

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.

Early stage boards work for stock options, not cash.

Berkonomics

Pay early stage board members of companies that are not lifestyle businesses one percent of the fully diluted equity in the form of an option that vests over four years of service. The option price should be set by appraisal under IRS rule 409a, and certainly should be low enough to recognize that common stock options are not worth as much as preferred stock, given the many preferences of the latter.

Stock Option Plan Rule of Thumb No. 4

Business Plan Blog

If a director or advisor’s term is discontinued, a lenient post-termination exercise period may be very valuable to an option holder. I advise clients to draft the option grant to permit exercise up to ten years after termination, depending on when the option was granted in relation to when the option plan was adopted. This article was contributed by William W Eigner, Esq. & & Brian Headman of Procopio, Cory, Hargreaves & Savitch LLP. .

Stock Option Plan Rule of Thumb No. 2

Business Plan Blog

Issue Options According To Value Added And Risk Taken. Options are often issued as a reward, either for services rendered or risk assumed by the recipient. It can be difficult to assess the intangible value of certain directors or advisors, and although a high profile individual is generally awarded a larger option package, the industry credibility and networking opportunities a director or advisor offers are not easily appraised.

Stock Option Plan Rule of Thumb No. 5

Business Plan Blog

For advisors, I recommended that companies avoid too much specificity, but nail down the length of service and the option terms, include an indemnification provision, and provide for confidentiality in a written advisor agreement, the term of which may be terminated at any time. This article was contributed by William W Eigner, Esq. & & Brian Headman of Procopio, Cory, Hargreaves & Savitch LLP. . Try Not To Jeopardize Relationships.

Stock Option Plan Rule of Thumb No. 3

Business Plan Blog

Gradually vesting a director’s and advisor’s options align their compensation with their actual service while protecting the company in the event that they are prematurely removed from the board. In this circumstance, vesting only allows a short-lived director or advisor to receive the fraction of the option package that corresponds with the director’s or officer’s actual term of service. This article was contributed by William W Eigner, Esq. &

Stock option expensing

BeyondVC

Jeff Nolan has a good overview of stock option expensing, and why we should get involved. While I agree for the need for complete transparency of stock options, I also do not believe that expensing all options at the grant date will get us closer to true economic reality. In addition, I believe the unfair burden of stock option expensing falls on private companies-FASB even recognizes this.

Google Stock Option Re-pricing: Get Over It

abovethecrowd.com

Prominent finance publications like the WSJ and the Motley Fool along with several bloggers have recently taken shots at Google with respect to their decision to re-price a boat-load of employee stock options. Just to review the details, in their last earnings call google management stated that they would offer all employees with options that have strike prices above the [.]. Internet Uncategorized Web/Tech Finance Google options stock options

How Much Stock to Ask For When Joining a Startup

Startup Professionals Musings

By the way, you will normally only be offered “options,” which vest over a 4-year period after a 1-year “cliff.” Many employees forget that there isn’t even a market for stock, until after the company has gone public, which hasn’t happened to many companies in the last few years.

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ESOP Fables: Reviewing The Myths And Facts About Employee Stock Ownership Plans

YoungUpstarts

Employee stock ownership plans (ESOPs) can be an attractive way for an owner to sell a company and for employees to gain an ownership stake. ESOPs are qualified retirement plans that buy, hold and sell company stock for the benefit of employees. by Timothy L.

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Legal Checklist for Startups

Scott Edward Walker

Don’t issue stock options unless a proper option plan is in place and a valuation has been done in compliance with Section 409A of the Internal Revenue Code (see post here ).

The Value of Ownership

OnlyOnce

We give stock options to every employee, and we regularly give additional grants to employees as well, as their initial grants vest, as they get promoted into more senior roles, and as they earn them through outstanding performance. Business Culture Human Resources Leadership Management Return Path awards owner problems and solutions Return Path core values stock optionsThe Value of Ownership. We believe in ownership at Return Path.

What are ISOs?

The Startup Lawyer

A stock option grants you the right to purchase a certain number of shares of stock at a pre-established price. An incentive stock option (ISO) is a type of stock option that allows favorable tax treatment to the stock option holder. 2) receive long-term capital gains treatment for taxable gain at the stock sale (instead of ordinary income tax rates). Stock Option Plan. ISO Option Length.

How much should you pay an executive in a startup company?

Startup Company Lawyer

Tags: Stock options

Why not share your liquidity success with those who got you there?

Berkonomics

Formal option plans for some. Some companies, especially those financed by angel or VC investors, have good, formal stock option plans with properly priced options set to reward all employees and managers in the event of a corporate sale.

Change of Control Option Acceleration

ithacaVC

I was recently in a board meeting and the topic of change of control stock option vesting acceleration came up. But the recent discussion confirmed my view that double trigger stock option vesting acceleration is very clunky, difficult for management teams to understand when it actually matters (at the time leading up to the change of control) and, in my view, should be used infrequently.

How to evaluate the great job offer you just won

David Teten

Options. Negotiate Your Equity And Salary With Stock Option Counsel Tips. Private company stock option grants: a founder’s guide to who gets what, when. How to assign stock options in early-stage startups. Any survey data on stock grants in private companies? How does a private company decide on the size of a stock grant? How to Make Startup Stock Options a Better Deal for Employees.

CMO CTO COO Equity and Compensation

SoCal CTO

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?

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Startups Should Invest in a Quality Scanner

The Startup Lawyer

These documents range from the startup’s bylaws to stock option agreements to third party contracts to prior financing documents.

Negotiating a Job Offer from a Private Equity/VC Portfolio Company

David Teten

Options. Negotiate Your Equity And Salary With Stock Option Counsel Tips. Private company stock option grants: a founder’s guide to who gets what, when. How to assign stock options in early-stage startups. Any survey data on stock grants in private companies? How does a private company decide on the size of a stock grant? How to Make Startup Stock Options a Better Deal for Employees.

10 Startup Quandaries That May Redefine Your Business

Startup Professionals Musings

Offer low cash early, with bonuses or stock options for milestones, to people in your personal network.

The right way to give equity to your employees

The Next Web

stock, options, warrants). As a rule, entrepreneurs are very protective of their equity, and try to keep 100 percent ownership for themselves. Usually this is fine, provided that important key parties (e.g., employees, partners) are appropriately motivated to help you succeed.

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How do you pay an early stage board?

Berkonomics

Pay early stage board members of companies that are not lifestyle businesses one percent of the fully diluted equity in the form of an option that vests over four years of service. Give one percent equity to each outside board member vesting over four years of service.

Even a taste of ownership motivates employees.

Berkonomics

But how about awarding stock options for all employees? These plans are not as popular today because of their complexity and difficulty to manage, lost in favor of simple stock option plans. Close. How about employees all the way down the line and through the corporation?

10 Ways To Trample And Smother Business Innovation

Startup Professionals Musings

An even better alternative could be stock options, linked to the long-term success of the company. Success in any business these days requires a constant flow of new and innovative solutions, to keep up with changes in the market, competition, and to attract new customers.

5 Ways To Safely Sample The Entrepreneur Lifestyle

Startup Professionals Musings

Founders stock, and stock options, will be worth nothing for the first several years, if not forever. Who gets stock options, and how many?

Startups Should Be Responsible for Explaining Equity to New Employees

View from Seed

When someone goes to work for an early startup, the compensation package general includes an annual salary, health insurance, and, instead of fixed-cost performance upside, a percentage of unvested options to purchase equity in the company.

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Why offering employee equity is crucial for your startup

The Next Web

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.

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How To Test The Startup Lifestyle Before You Commit

Startup Professionals Musings

Founders stock, and stock options, will be worth nothing for the first several years, if not forever. Who gets stock options, and how many?

Should Startups Care About Profitability?

Both Sides of the Table

It was a stock option incentive related “expense” but I bet you didn’t know that because in an era where we only read the headlines — they must be a train wreck losing billions. I don’t want to pretend that stock-option grants have zero impact on you as a shareholder.

Careful about equity and options in early stage businesses

Berkonomics

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. How many options are appropriate for a grant?

Rule 409A – Again

ithacaVC

Here is the post, which focused mostly on how 409A valuations are used for stock option purposes. Stock options prices for startups should be as low as possible. I first wrote about Rule 409A back in September 2011. BTW, I continue to think that as applied to private companies 409A is a terrible rule. And I think that early stage companies should take the risk and not use 409A valuations.