Interview with Florian Jourda first architect at Box.
“After years of hard work, I had the chance to monetize all the stock options the company granted to me and got enough to buy an apartment back in France. That was a great upside for all those years of commitment.”
Startup compensation has two pillars: salary and equity. Salary pays your day-to-day work, equity through an employee stock options plan (ESOP) can be a long-run game changer.
Plenty of articles explain the pros and cons of startup equity — here’s a great one from Mathias, a director at The Family. But it’s important to hear real stories of what actually happened to people in order to get some context and perspective.
So we sat down with Florian Jourda, early employee at Box, a cloud content management service for businesses. Box was founded in 2005, went public in 2015 with an IPO valuation of $2.4 billion, and today has more than 2,000 employees worldwide. Florian’s story is a great way to understand what stock options can mean in the startup world.
Florian was born and raised in Lyon, graduated from École Polytechnique in Paris and then went to study at UC Berkeley in 2004. After graduating from Berkeley, he joined Box in 2007 as its first engineer.
The first time he really thought about stock options was during the hiring process and he had no clue of how to negotiate; still, he knew he wanted to get a fair deal.
During the first interview, Box proposed a ‘welcome pack’ of stock options representing 0.3% of the company’s capital. That seemed a bit low to him at first glance, and so he negotiated hard and finally accepted the job with 0.4% in stock options. With solid performance in his first year, he negotiated again to get a bit more (0.6%).
It’s hard to negotiate your equity package during an interview when you have no idea what to discuss. You don’t know how much it’s worth and what conditions to care about. Founders should speak in cash, not percentage. Plus, founders should do their best to avoid offering salary and stock options based on the candidate’s negotiation skills. Good luck keeping the gender pay gap under control if you allow hard-negotiating men to get more than they deserve.
Once he got the job, he was granted stock options based on the valuation of the company at that time. Stock options give you the possibility, according to certain conditions (presence and/or performance), to purchase shares in the company at a fixed price. This is called the ‘strike price’, and is usually a few cents per share when you join very early, making shares almost free.
The conditions of my initial grant were pretty standard and similar to other startups’ offers in the Bay Area: you earn all the granted options within 4 years with the company by acquiring them month-by-month, except for the first year where it’s all acquired at the end of that year if you are still at the company (the ‘cliff’).
4 years later, Florian was still working at Box and had earned all of his stock options while the company was growing fast, doubling revenues and employee count year-over-year. But to support this growth the company needed to raise more money, which impacted the percentage of the company that he owned.
I was worried about the dilution impact of new financing rounds. When the company raised funds, my ownership percentage went down. But I finally realized that it wasn’t an issue. Dilution happens any time a company needs additional capital, but it doesn’t affect the cash value of your stock options. The price is fixed and if the value increases that means your capital gain increases too.
To keep Florian motivated and incentivized, Box granted him new stock options, commonly referred to as ‘refreshers’.
The end of your first vesting schedule doesn’t mean that you reached all the company’s objectives and the game is over. It’s like a positive incentive to keep you motivated even if the upside of the new grants isn’t quite as juicy, since the strike price is higher (share are not “almost free” anymore), reflecting the new valuation of the company.
The upside refers to the ‘ capital gain ‘, the difference between a higher selling price of the shares (based on today’s valuation of the company) and a lower strike price (based on the valuation at the grant date).
Say you are granted stock options when the company is worth almost nothing, like when Florian joined Box: €0.10 per share. The company has continued to grow and closed further funding rounds, like Box. Its latest valuation is now €8 per share. You’ve performed well and you are granted new stock options when the valuation of the company is at €8. A few years later, the valuation has almost tripled again, to €20 per share. Thus the upside for the first stock options would be €19.90 vs. €12 for the additional ones granted later.
For Florian, the capital gain became real in 2015 with Box’s IPO, 8 years after he joined. This ‘exit’ gave him the opportunity to sell his shares and turn his stock options into cash.
It took almost a year for the company to prepare the IPO. We were all kept informed internally. The company was well assisted by bankers, lawyers and other financial experts. Once the shares traded on the NYSE I had a 6-month lock-up period during which I couldn’t sell my shares. I also couldn’t sell my shares during the first days of each ‘quarterly earnings call’, i.e. when the company publicly discloses its financial information. Then later I was able to sell many of my shares to get money to buy an apartment back in France. This was a great upside for all those years of (lucky) hard work
ESOPs can be a powerful tool for hiring, retaining, motivating, and rewarding talent. Along with the financial success, the psychological effect of an employee’s having ownership in the company can help boost engagement and pride in being onboard.
We asked Florian if he had any final tips regarding an ESOP. Here you go:
- Founders should have a fair and transparent stock option attribution mechanism that is based on the role the candidate will have and not on their negotiation skills (in France, Alan does a great job with this).
- Founders should be proactive about educating employees and candidates about how stock options work (strike price, vesting, exercising when you leave) with tools to help visualize the current and potential gains, including how taxation works in their country.
***
Interview by Florent Artaud, CEO & founder of Ekwity, & Younès Rharbaoui, Dean at Join Lion.
