A fully automated startup equity model, by TOTEM

Rafaël de Lavergne
May 3 · 7 min read

Including a link to download a fully automated spreadsheet to make your own equity model. 👇

TOTEM was founded 2 years ago by 3 engineers wanting to help companies find better (=meaningful) perks and better ways to incentivise employees.

Team Spirit.

After we talked to our investors at Kima Ventures (Jean de La Rochebrochard ) about our model, they decided to add it to their best portfolio practices, along-side Captain Train’s model. 9 months later, I’ve received 10+ emails from founders wanting to create their model and use our template. 💌

And even though Rose Dettloff created a super nice Kima doc based on our messy and not-fully-automated spreadsheet, there were still a lot of pieces missing, and I always had to spend an hour or so with each founder to fully explain the process.

So I decided to finish the template, make it super clear, and open it to everyone with the hope that it can help our start-up ecosystem grow and thrive. 🚀

Before launching TOTEM, we did 100s of interviews with employers and employees to understand what kind of perks people were looking for. We realised 3 things:

  • employees believe that the best perks are local, to the point that their favourite perks are usually the ones within their office space. ☕️
  • employees love food, on both a physical and emotional level. At TOTEM, we believe that free food has the best ROI a company can get with perks. No wonder why Google created Google Food, right? Just saying, we are as serious about free food as we are about equity ;-).
  • we all know that the management & culture behind the perks are essential.

And that last rule definitely applies to equity as well! Equity is one of the best tools out there to align employees and founders toward the same long term goal. 🏅

Motivated by our mission, we decided to have the best internal culture possible and dived deep into equity.

Equity mirrors your vision by incentivising employees with the future (potential) economic upside.

Methodology:

We benchmarked all the best models out there and we thank 🙏:

  • Captain Train
  • Agricool
  • And the resources provided by The Gallion Project, Ekwity and our lawyers at Orrick

… for their amazing models based on transparency and meritocracy, with 3 clear factors:

  • Seniority
  • Risk
  • Management
Captain Train’s Model

Still, we believed that some things were missing from the equity equation …

  • Risk is not linear enough 📈. I don’t think that the number of employees is a proxy for risk. For example, there is no real reason why the 4th employee will get 1/2 of the 3rd employee.
  • Risk is about when you arrive but also about how much you will help the team get to the next round. Knowing the fact that a pool legally lasts for 18 months, you should (or need to) use it completely before the next round. Therefore the idea of a pool is to recruit top talents to get you to the next round and/or achieve the overall mission. At TOTEM, we believe a salesperson who arrives in the 1st month after a seed round should get twice as much from the Seed Pool than a salesperson who arrives in the 10th month will get.
  • Seniority & Management are based too much on internal decisions and how the top management sees your job. I prefer a one shot & dry approach by just giving equity at the entry date. How can you precisely decide if someone is an Expert or a Wizard? 🙋‍♂️ How does the Seniority Model take into consideration that 2 years of experience internally can have more value than 4 years externally? There is too much room for interpretation and therefore internal conflicts.
  • It does not take into consideration the importance of a Position or specific skill within a company. And rare skills aren’t only found in management positions.

How did we, at TOTEM, decide to share equity?

What we kept from the model:

  • Start Package. We decrease it by 5% per month to take risk and impact until the next round into consideration. If you arrive in the 5th month after the seed round, you will get €8k of the Seed Package, and then 100% of the Series A and B package, since you arrived prior to those rounds.
TOTEM’s Start Package Model
  • Risk. But we decided to base it on the stage (Seed, Series A, Series B) and the month of arrival, like shown above
  • Seniority. To value internal experience 2x more than external experience.
TOTEM’s Seniority Model

We added:

  • a Position Coefficient. Of course, this is not 100% rational, but at least it is something negotiated before the employee starts, not after, which lowers the risk of conflict.
TOTEM’s template Job Coefficient
  • Successive packages according to each stage, with a “cohort” model of how the value evolves, to show people how Seed BSPCE are worth way more than Series A or Series B BSPCE, therefore, taking the risk automatically into consideration.
TOTEM’s cohort model for a clear offer to employees: Here, 5th month after Seed, a Sales Junior will get €200 of the Seed Package and €10000 on the Series A Package and €30000 at Series B

The (equity) formula is simple:

For each employee & for each round: “Round X”:

Amount of BSPCE to give at (Round X) = Start Package (Round X) * Coefficient of Entry/Risk * Position Coefficient * Experience Coefficient

We believed that a clear spreadsheet was needed, a place where you could plan all your recruitments toward the next round, having a clear strategy of how much BSPCE is left and how you can re-incentivise older employees with each round.

Here, for example, is the summary of how much Seed BSPCE is left. Here, there’s only around 1% left

How to make it “sexy” for employees & explain vesting and ROI in “real time”?

Vesting is always tricky to explain, which is why we decided to do a clear presentation to all our employees with an Equity Guide created with Ekwity and Florent Artaud.

We also decided to implement Toquity.io, which allows you to manage your cap table and lets people (investors, BAs, employees, and so on) easily see what they’ve vested or not, what the current value of their options is if you have a new valuation, and so on:

Example 1: Here’s a €150k investment made on March 29, 2018 is now worth €263k with a new valuation on the June 1st, 2019.
Example 2: Here is an employee who has already vested 25% of his shares and who can see at which date they will get the rest of the equity if they stay

What can be improved?

> 👨‍💻 I have been thinking of trying to automate the Start Package amount according to the size of the pool and the number of hires that will be made before getting to the next round. I would love to have your thoughts on that.

> 🤝 Communication, of course! I believe it is the responsibility of founders, and more generally investors and the global start-up ecosystem, to make equity not only a recruitment marketing tool but something that actually works and creates real value for founders, investors, and employees themselves!

> 🙋‍♂️ Has anyone tried to do equity bonus, each quarter, according to the result on OKRs ? For example, let’s say a Sales Manager hit 100% of his OKR goal, he would get €1000 equity more. And this, at each quarter, to motivate them even more. This would mean keeping a portion of your pool to incentive employees each quarter.

Updates thanks to feedbacks:

> You can now in “Equity” put different jobs at each stage like:

  • Seed: Sales
  • Series A: Sales Manager
  • Series B: Sales Manager

… to take into consideration internal HR changes.

> You can now automate your salary grid per stage too

So here is the template!

You can see it here.

This is a gift & all I ask is:

  • 🙏 that you give me your real feedback.
  • 💌 that you directly share this article or link if you want to share it with other people interested in our model.

You can’t change things on the spreadsheet, but you can comment so that I can review it (and therefore we can improve it all together).

You can also download it and make it your own !

Feel free to contact me at rafael@thetotem.co.

LinkedIn here.

Website here.

Thanks to Pierre H. Gallet.

Rafaël de Lavergne

Written by

CEO at Totem (www.thetotem.co). Strong believer & enthusiast around company culture in order to make our society more productive, efficient and human-centric.