Download as PDF, PPTX
Uploaded byTaylor Davidson
Employee Equity 101
The document discusses various aspects of employee equity at startups, including: - How startups raise money from venture capital firms by selling shares of the company - The different classes of shares (common, preferred) that founders, employees and investors hold - The use of option pools to grant stock options to employees as part of their compensation - Factors to consider when evaluating a startup job offer, such as vesting schedules and how much equity the employee would own - How employee equity is affected by future funding rounds and exit events like acquisitions or IPOs
More Related Content
Employee Equity 101
- 1. @tdavidson Employees +Equity Crash Course @tdavidson taylordavidson.com
- 2.
- 3.
- 4. @tdavidson How dostartups raise money?
- 5. @tdavidson Startups raise venturecapital by selling part of the company.
- 6. @tdavidson “Raise $1MM at $5 MM post-money valuation”
- 7. @tdavidson Expect tosell 10-30% in each round of fundraising * * roughly
- 8. @tdavidson Seed, A,B, C, D +
- 9. @tdavidson Each round createsit’s own class of shares
- 10. @tdavidson Founders and Employeesown Common, Investors buy Preferred
- 11. @tdavidson Capitalization Tables =who owns what
- 12.
- 13.
- 14. @tdavidson Option Pools 10-20%of shares
- 15.
- 16. @tdavidson Options 101 -The right to buy stocks at a predetermined price, or strike price - Strike price set at fair market value - Have to be exercised
- 17. @tdavidson Align riskand reward Reward long-term value creation and thinking Encourage employees to think about holistic success http://firstround.com/article/the-right-way-to-grant- equity-to-your-employees
- 18.
- 19.
- 20. @tdavidson If iis the average outcome for the company with the addition of some new person, then they're worth n such that i = 1/(1 - n). Which means n = (i - 1)/i. http://paulgraham.com/equity.html
- 21. @tdavidson 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%. n = (1.2 - 1)/1.2 = .167. So you'll break even if you trade 16.7% of the company for him. http://paulgraham.com/equity.html
- 22. @tdavidson Save 20%for employees - Sam Altman, Y Combinator http://blog.samaltman.com/employee-equity
- 23. @tdavidson “As anextremely rough stab at actual numbers, I think a company ought to be giving at least 10% in total to the first 10 employees, 5% to the next 20, and 5% to the next 50. In practice, the optimal numbers may be much higher.” - Sam Altman, Y Combinator http://blog.samaltman.com/employee-equity
- 24.
- 25. @tdavidson CEO: 5-10% C-LevelExec: 1-3% VP, Director: 0.5-2% Manager: 0.25-1.00% Board Directors: 0.5% - Rob Grossman http://rob.by/2013/negotiating-your-startup-job-offer/
- 26. @tdavidson “The onlything that matters in terms of your equity when you join a startup is what percent of the company they are giving you. If management tells you the number of shares and not the total shares outstanding so you can’t compute the percent you own – don’t join the company! They are dishonest and are tricking you and will trick you again many times.” – Chris Dixon http://cdixon.org/2009/08/28/the-one-number-you- should-know-about-your-equity-grant/
- 27.
- 28. @tdavidson Options arepart of a total compensation plan (salary, benefits, options)
- 29.
- 30. @tdavidson “Your offeris only as good as your negotiation”
- 31.
- 32. @tdavidson Four yearcliff 25% after 1 year Monthly / Quarterly after
- 33. @tdavidson Back weighted 10%after 1 year 20% after 2 years 30% after 3 years 40% after 4 years
- 34. @tdavidson > 4years Longer vesting should bring larger overall grants
- 35. @tdavidson Refresher / Evergreen Newgrants during the 4 years http://firstround.com/article/the-right-way-to-grant- equity-to-your-employees
- 36.
- 37. @tdavidson Reporting %on fully diluted shares? https://blog.wealthfront.com/stock-options-package- valuation/
- 38. @tdavidson What happensto vested shares if leave before fully vested https://blog.wealthfront.com/stock-options-package- valuation/
- 39. @tdavidson Early vestingon acquisition https://blog.wealthfront.com/stock-options-package- valuation/
- 40. @tdavidson How are optionspriced? https://blog.wealthfront.com/stock-options-package- valuation/
- 41. @tdavidson Early exerciseof options? https://blog.wealthfront.com/stock-options-package- valuation/
- 42. @tdavidson When waslast 409a appraisal? https://blog.wealthfront.com/stock-options-package- valuation/
- 43. @tdavidson What waslast funding valuation? https://blog.wealthfront.com/stock-options-package- valuation/
- 44. @tdavidson When isnext funding round? https://blog.wealthfront.com/stock-options-package- valuation/
- 45. @tdavidson How toevaluate a startup employer
- 46. @tdavidson Which isbetter? a) .01% as employee #100 b) 5% as employee #3
- 47. @tdavidson - DoI trust this team? - Do I believe the product will succeed? - Is this the right company? - How much has company raised and on what terms? - How much runway the company has and when they’ll need to raise again? - What is my percentage ownership? - What is the market rate salary and equity comp? - Is there an exit strategy? - What is the estimated valuation at exit? - How long is my vesting schedule? - What are the tax implications?
- 48. @tdavidson You’ve beenhired: now what?
- 49. @tdavidson New funding rounds= Dilution
- 50. @tdavidson Dilution? Issue moreshares, own smaller % But (hopefully) at larger price per share
- 51.
- 52. @tdavidson All exitsnot created equal http://rob.by/2013/negotiating-your-startup-job-offer/
- 53. @tdavidson Consider: Preferred /Common Liquidation Preference Valuations
- 54. @tdavidson Raised $18MM Sold for $20 MM $2 MM to distribute? http://rob.by/2013/negotiating-your-startup-job-offer/
- 55. @tdavidson Details matter Taxesmatter Timing matters Legal matters
- 56.
- 57. @tdavidson Buffer: OpenEquity http://open.bufferapp.com/buffer-open-equity-formula/
- 58. @tdavidson Case study:Buffer http://open.bufferapp.com/buffer-open-equity-formula/
- 59. @tdavidson Case study:Buffer http://open.bufferapp.com/buffer-open-equity-formula/
- 60. @tdavidson Additional Resources • AngelList: http://angel.co/jobs • CrunchBase: http://crunchbase.com • Visualization of dilution: http://visual.ly/visualizing-dilution • Fed Wilson’s Cap Table Template: http://avc.com/2011/09/mba-mondays-cap-tables/ • Mark Suster Cap Table and Valuation: http://www.bothsidesofthetable.com/2010/07/22/want-to-know-how-vcs-calculate- valuation-differently-from-founders/ • Anonymous Startup Salaries: http://www.ackwire.com/ • Wealthfront: https://www.wealthfront.com/tools/startup-salary-equity-compensation • Buffer: http://open.bufferapp.com/buffer-open-equity-formula/ • Salary Negotiation: Make More Money, Be More Valued by Patrick McKenzie: http://www.kalzumeus.com/2012/01/23/salary-negotiation/ • Best practices on financial modeling: http://foresight.is/best-practices • An Introduction To Stock & Options by David Weekly: • Book: http://www.scribd.com/doc/55945011/An-Introduction-to-Stock-Options-for-the-Tech- Entrepreneur-or-Startup-Employee • Video: http://blog.dweek.ly/introduction-to-stock-options-startup-founder-entrepreneur- employee/