Startup CXO

Chapter 20Equity

Equity Management

Equity management is another area that is important to organize and where you should have discipline as early as possible during a startup. There are a few areas to pay careful attention to:

• Stock compensation form documents. It is useful to have form documents for option and stock grants, grant exercise documentation, and share transfers. Note that if you operate in different countries, you will likely need to have different stock compensation plans.
• FAQ for employee questions. There are always a handful of questions employees have and having clarity on them will help employees value the stock compensation. Some of the most common include:
  • Tax implications of the grants, which can be very different if the grant is an option grant (Non‐qualified vs. Incentive Stock Options), restricted stock, or restricted stock units.
  • How to roughly think about the value. You should not give an exact value, but provide guidance on how to think about the valuation.
  • How and when to exercise options. Employees will often want or need to exercise their options when they leave the company, but also may have opportunities to early‐exercise for a more favorable tax treatment.
  • What happens when an employee leaves the company. For many years, most venture‐backed companies have followed a standard 90‐day post‐termination exercise period. No matter why the employee is leaving the company, they have 90 days to exercise their vested stock options otherwise lose them ...