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  • Writer's pictureBenjamin

๐—ฆ๐—ต๐—ฎ๐—ฟ๐—ถ๐—ป๐—ด ๐—˜๐—พ๐˜‚๐—ถ๐˜๐˜† ๐—Ÿ๐—ฒ๐—ฎ๐—ฑ๐˜€ ๐˜๐—ผ ๐—ฉ๐—ฎ๐—น๐˜‚๐—ฒ

๐™‚๐™ž๐™ซ๐™š ๐™ข๐™š ๐™– ๐™ก๐™š๐™ซ๐™š๐™ง ๐™ก๐™ค๐™ฃ๐™œ ๐™š๐™ฃ๐™ค๐™ช๐™œ๐™ ๐™–๐™ฃ๐™™ ๐™– ๐™›๐™ช๐™ก๐™˜๐™ง๐™ช๐™ข ๐™ฉ๐™ค ๐™ฅ๐™ก๐™–๐™˜๐™š ๐™ž๐™ฉ, ๐™–๐™ฃ๐™™ ๐™„ ๐™จ๐™๐™–๐™ก๐™ก ๐™ข๐™ค๐™ซ๐™š ๐™ฉ๐™๐™š ๐™ฌ๐™ค๐™ง๐™ก๐™™. โ€“ ๐˜ผ๐™ง๐™˜๐™๐™ž๐™ข๐™š๐™™๐™š๐™จ

In building your dreams, you want to retain equity for a winning exit. At the same time, the talent (and fundraising*) needed to amplify growth will demand equity.

If he were an entrepreneur, stock options may be the lever Archimedes sought to attract and retain the contributors for success.

By offering a share of the anticipated upside, options align motivation and goals in the pursuit of moving the world.

Note: This post should not be used as legal or tax advice. Seek expert opinions for your specific needs.

๐Ÿฑ ๐—ง๐—ต๐—ถ๐—ป๐—ด๐˜€ ๐—ณ๐—ผ๐—ฟ ๐—™๐—ผ๐˜‚๐—ป๐—ฑ๐—ฒ๐—ฟ๐˜€ ๐˜๐—ผ ๐—ž๐—ป๐—ผ๐˜„ ๐—ฎ๐—ฏ๐—ผ๐˜‚๐˜ ๐—ฆ๐˜๐—ผ๐—ฐ๐—ธ ๐—ข๐—ฝ๐˜๐—ถ๐—ผ๐—ป๐˜€

๐˜Š๐˜ฐ๐˜ฎ๐˜ฑ๐˜ฆ๐˜ต๐˜ช๐˜ฏ๐˜จ ๐˜ง๐˜ฐ๐˜ณ ๐˜›๐˜ข๐˜ญ๐˜ฆ๐˜ฏ๐˜ต โ€“ Stock options align incentives and behaviors (creation, motivation, and savings) to attract valuable contributors.

When deciding on both the overall and individual grant size, create a consistent system and then gauge each roleโ€™s contribution. Most founders set from 10% - 15% equity to engage valuable talent.

๐˜๐˜ฆ๐˜ด๐˜ต๐˜ช๐˜ฏ๐˜จ โ€“ Building a vesting schedule encourages both contribution and retention over many years.

The typical cliff on the first year gives enough time to make sure the person is contributing and can be part of your long-term plans. Consider a second tranche for employees when their original vesting schedule ends or if their contribution vastly exceeds expectations.

๐˜™๐˜ฆ๐˜ธ๐˜ข๐˜ณ๐˜ฅ๐˜ด โ€“ When introducing a stock option plan, be clear about what you are offering. There are some good guides available.*

Share updates about the companyโ€™s achievements and challenges so others see themselves as owners in the company's success. Also, know that the type of grant is important, e.g. ISOs give tax incentives over NSOs.

๐˜š๐˜ฆ๐˜ค๐˜ต๐˜ช๐˜ฐ๐˜ฏ 83(๐˜ฃ) โ€“ A Section 83(b) election allows someone receiving restricted stock and stock options to potentially save a lot in taxes.

The recipient elects to pay taxes based on the fair market value of the company now instead of when the options vest (e.g. an exit). To participate, let the IRS know by sending the 83(b) document and pay the appropriate taxes within 30 days of receiving the options.

Note: the options could be worth a lot more but also you could lose money here, so seek guidance.

๐˜›๐˜ฆ๐˜ณ๐˜ฎ๐˜ช๐˜ฏ๐˜ข๐˜ต๐˜ช๐˜ฐ๐˜ฏ โ€“ Some founders get sour the moment an employee is leaving. However, a former employee may add value again.

If the relationship ends well, they may introduce clients, suggest new employees, and they may even want to return now more motivated. Honor past contributions and possible future engagement by listing reasonable terms for how long ex-employees can exercise options.

๐Ÿ’ธ Stock options are a strong lever when planned carefully. Start moving the world.


* Fundraising is discussed at length here:

** Carta offers a great guide to stock options:

The "Archimedes" Portrait was painted about 1620 by Domenico Fetti in Mantua.

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