By David Frankel, Managing Partner
Granting options to your employees is a wonderful perk of being a startup CEO. It’s a rare thing to be able to offer an employee a potentially life-changing sum of money! But in order to get options approved you need to work with your board.
Here is how to do it right.
The key principle is clarity
Discussions around options shouldn’t be confusing, but they can easily become so if the spadework isn’t done ahead of time. At the early stages, there is no reason for this process not to be crystal clear.
There are plenty of times where you’ll need to activate a sense of urgency among your investors. Getting stock options approved should never be one. It’s a sure way to signal to your VC’s that things aren’t running smoothly. Don’t make this rookie mistake.
When you make grant requests, be sure to send the most up-to-date cap table, and provide the following context:
🥧 % of cap table for ESOP
⌛️ % of ESOP remaining post-grant
👋 Justification for larger grants
🔒 Confirmation of 4-year vesting
There will likely be a few people receiving larger grants. If any members of the board have not met with these people, provide a line or two of explanation. Also, explain any grants with <4-year vesting.
The heart of the request should be a table that collects the following data:
😀 Employee name
🎟️ Type of option
🧮 Number of shares granted
📆 Vesting commencement date
⏲️ Vesting schedule
🥤 % of Fully diluted capital
If you’re able to get this information to your investors 2–3 weeks ahead of the date it is needed, your request will almost certainly be granted promptly and in the process, you will build significant amounts of confidence with your backers.