Why I love eShares.com and the feature I hope they build next.
Henry Ward’s article about broken cap tables is quite telling, and packed with real-life headaches that come with old-school cap table management. Fortunately for you and me, his product eShares.com exists.
My experience with eShares so far
My startup has taken outside money in two rounds: joining an incubator and raising an angel round. We’ve also compensated employees with stock.
Here’s a summary of what’s gone onto our cap table using eShares:
- Founder common stock
- Incubator common stock
- Incubator convertible note
- Angel round SAFE
All said, it’s not that complex, right? But in reality this comprises a total of more than 10 parties on our cap table. I can’t imagine the waste of time it would be to manually manage an Exel doc and issue each a physical certificate!
eShares made this VERY simple and painless. In fact, our lead angel investor Tim Draper required that we manage our cap table and issue stock certificates using eShares. Fortunately for us, we were already using eShares when Tim agreed to invest.
And given all the risk and mess for the early stage investors, why wouldn’t they insist on using eShares? But seriously, why would you want to manage your cap table like it’s 1998, anyway?
What’s missing from eShares?
When you compensate employees, generally you authorize a pool of stock to be allocated for that explicit purposes called the (“options pool”). At the early stage of a startup, you are not legally allowed to issue stock options (until you do a proper valuation), but rather you issue common stock grants. Anyone you issue common stock to will show up on the cap table.
The options pool
Unfortunately there is currently no way to indicate on your eShares cap table that these people were issued common stock allocated from the options pool versus these people were founders versus these people are investors. At least, if there is a way of doing these things, then I’m ignorant of it.
The downside here is that your beautifully generated cap table (they really do deliver on that promise—nice work!) will show a bunch of employees issued from the option pool right along side founders and everyone else. That’s not a huge problem per-say, but it may raise questions with investors (“who is this person and why do they own 1% of your common?!”) You can manually adjust the generated version to indicate that, but hey… wouldn’t it be cool if?!
This feature does exist!
To make it work, you’ll first need to create an Options Pool:
- Click “Options” under your company
- “View Options” >> “View option plans” >> “Create option plan”
- Follow the steps to create the options plan
Now when you issue Common Stock, be sure to select the option to issue it out of the EIP (employee incentive plan). Previously issued certificates from regular common stock will need to be canceled and re-issued from the EIP to show up correctly using this feature.