After 7 startups full-time and another 20+ as an investor/advisor, it’s become clear to me that startups should do a better job with all aspects of their incentive stock compensation, and not just follow convention because it’s “what we’ve always done.” This has been on my mind for a while, and after a recent Twitter exchange with a few VC/angel friends, I’ve been thinking about how startups can adjust certain aspects of incentive stock compensation to be more favorable to employees as well as the company. There are four specific areas of focus that I think are ripe for change:
- Cap table transparency for all
- Early exercise for early employees
- More than 90 days to exercise after departure
- Vesting schedule revisited
[also should add company buyback rights (no) and acceleration upon acquisition (100% double-trigger) as noted below in the July 31, 2015 update]
1. Cap table transparency for all
Let’s say Calvin decides to leave Startup #1, where he has 10,000 stock options vesting over 4 years, to join Startup #2, where he has been offered 20,000 stock options vesting over 4 years. He thinks “wow, that’s double the stock!” Uh, no. What he failed to understand was the 10,000 options represented 1% of the fully diluted shares…
