This presentation is made to assist start-up founders, business leaders, and strategic thinkers in understanding the critical role ESOPs can play in team motivation, accelerating growth, meeting strategic targets, and striking the right note to drive business growth.

1. Topic: Does Your ESOP Program makes you more
attractive to VCs?
Presented By: Jalaj Sinha (Head – Business Development)

2. Context to this Webinar
Is an ESOP plan for employees attractive to VC funding
for your startup? If so, why?
How to establish the equity pool?
What is the process of setting up an ESOP plan?
How should option pool math be interpreted?
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3. What a VC looks for in a Prospect
Market Product
Market Size
Competitors
Competitive Advantage
Product Market Fit
Product Differentiation
Value Proposition
Financials
Capital Requirement
Cash Flow / Profitability
Exit Period
“We asked VCs what contributed most to the success or failure of their portfolio companies. The
management team was identified as the most important factor by far” - HBR
Management
Domain Expertise
Individual Responsibilities
Relevant Experience
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4. What a VC looks for in a
Management Team
Collectively the Management Team Must Have
- Long-term view regarding the direction of the company
- Technical skillset and experience to create the product better than others
- Business acumen to enter the market through effective sales and go-to-market strategy
- Years of working together skills which complement each other
Seed-stage
Early Stage
Growth-stage
Late-stage
• Co-Founders
• Founding Team
• Advisors
• Co-Founders
• Founding Team
• Advisors
• Early Employees
• Co-Founders
• Founding Team
• Advisors
• Early Employees
• Growth-Stage Executive
• Co-Founders
• Founding Team
• Early Employees
• Growth Stage Executives
• C-level Executive
• Professional CEO
• Non-Investor Board Members
Prototype Commercial Product High Growth IPO/Exit
Team Profile
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5. Why are ESOPs preferred?
What VC typically advice on ESOP plan
• Select Management Coverage
• Focus on the CEOs/CXO/Senior leadership
• Performance/KPI-based Vesting
• Exercise Price linked to last fundraise valuation
• Plan framework in line with industry best practices
• Liquidity events linked to IPO
• Accuracy in scheme documentation, Paperwork, Employee Communication
• Great way to attract talent in a competitive environment
• Make the compensation more attractive while saving on cash outflow
• Retention of key team members
• Encourages the sense of ownership
• Links organizational value creation and personal wealth creation
• Factor that influences performance and growth
• Founders can be covered if the startup is a DIPP-approved start-up
ESOP aids in strengthening of the Management Team
By the time startup raises
series A, approximately
80-90% of them have
ESOPs in place for their
senior management
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6. Define Coverage
Estimate Valuations
Assess Criticality
Potential Benefits
Grants Frequency
Determination of Individual
Award
Setup Strike Price
Option Pool
Hiring Grant Retention Grant Performance Grants Top up Grants Promotion Grants
How Large Should
the Pool be
Type of Start-up
Founder Skill-set
Hiring Needs
Team Size
Talent Pool
Investor Termsheet
Establishing the Equity Pool
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7. Option Pool Math
Nos of Shares % of Equity
Founder A 10,000 50%
Founder B 10,000 50%
20,000 100%
Pre-Money
Pre-money Valuation = Rs 10 mil
Investment Money = Rs 2.5 mil for 20% stake
Price- per share = Rs 500/share
Post-money Valuation = Rs 12.5 mil (10 mil+2.5 mil)
Shares issued to the investor = 5000 (2.5 mil/500)
Nos of Shares % of Equity
Founder A 10,000 40%
Founder B 10,000 40%
Investors 5,000 20%
25,000 100%
Post-Money
When there is no ESOP Plan in the Company
Founders Equity Valuation = Rs 10 mil
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8. Option Pool Math
Nos of Shares % of Equity
Founder A 10,000 40%
Founder B 10,000 40%
ESOP Pool 5,000 20%
25,000 100%
Pre-Money
Pre-money Valuation = Rs 10 mil
Price- per share = Rs 400/share
Investment Money = Rs 2.5 mil for 20% stake
Post-money Valuation = Rs 12.5 mil (10+2.5)
Shares issued to the investor = 6,250 (2.5 mil/400)
Nos of Shares % of Equity
Founder A 10,000 32%
Founder B 10,000 32%
Investors 6,250 20%
ESOP Pool 5,000 16%
31,250 100%
Post-Money
Investors recommend 20% ESOP for Key Management considered in Pre-money
Founders Effective Equity Valuation = Rs 8 mil, not Rs 10 mil
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Issued Cap
38%
38%
24%

9. Option Pool Math
Key Takeaways
• Founders and Investors should be aligned on how the option pool will be structured
• Pre-Money valuations are typically done on a fully diluted basis, which includes the entire ESOP Pool
• Initial pool should not be very-high at the seed stage and all stakeholders should bear ESOP dilution
as the company grows
• Investors should ensure that unissued shares from the ESOP pool will revert to the founders in case
the company is sold
• ESOP pool should be topped up as the requirement arises at each funding stage
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10. Annexure

11. Key Terms in an ESOP Plan?
1. Grant It is a right (but not an obligation) granted to an employee to purchase Company shares at a
predetermined price at a future date if certain conditions are met.
2. Vesting It's when the employee has fulfilled all the prerequisites and the right has crystallized.
3. Vesting Period It is the time period during which Grants vest.
4. Vesting Percentages It's a schedule that specifies how much vesting participant get over the course of the vesting
period.
5. Vesting Conditions These are the conditions that must be met for vesting to occur.
6. Exercise Price It is price to be paid to the Company on purchasing the Shares.
7. Exercise Period The window within which the vested options must be exercised otherwise it will lapse
8. Liquidity Event The Occurrence of an event that allows the Options to be monetized, such as fund infusions,
company/promoter buy-backs, cash settlements, strategic sale, mergers and acquisitions, and
initial public offerings (IPOs).
9. Scheme Document The Scheme document outlines the Plan's terms and conditions, as well as the Employers' and
Employees' responsibilities.
10. Grant Letter The letter details the quantum allocation, vesting criteria , vesting period and vesting schedule for
an individual recipient.
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12. Selection of Equity Incentive Instruments - -- -ESOPs,
RSU, SARs, Phantom
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Fix up the Strike Price , Define
Vesting Schedule/Conditions, Exercise Restrictions,
Separation Rules and Exit Mechanism
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Prepare the Scheme legal documents, Resolutions,
Grant Agreeements,
Employee Communication Pack and
and get Approval
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Set Aside the Option Equity Pool in
your Captable
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Identify the Eligible Employees
01 Get the Share Valuation done
from a Registered Valuer
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Make Grants to your
Growing Team
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Setting up an Option Plan

13. About Speaker:
Jalaj heads Business Development of ESOP ezeeTM.
He is a Chartered Accountant and has various years
of experience in Sales, Consulting, Marketing,
Strategic Alliances, Managing Relationships and
New Market Development. He was previously
associated with Tata Consultancy Services. You can
reach out to Jalaj at jalaj@esopdirect.com
Jalaj Sinha
Head – Business Development
Disclaimer
The materials and information on this presentation have been prepared or assembled by the Firm and are intended for informational purposes only. Any opinions
expressed on or through this presentation are the opinions of the individual speaker and may not reflect the opinions or guidelines of the Firm or the Industry.
ESOP ezeeTM do not accept or assume responsibility for any other purpose or to any other person to whom this note is shown or in whose hands it may come.
Contact us @ 020 - 27400500 / +91 80876 97674
info@esopezee.com
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ESOP ezeeTM is a one-stop bundled solution to Design and
manage the entire life-cycle of ESOPs in early stage and
start up companies. As a long-term partner, we work with
our clients to make ESOP successful.