Option pool specifics are key areas for private companies to understand. Equity is important for private companies because it is the equivalent of a long-term incentive, with a typical vesting over four years, with a one-year cliff.
We recently partnered with J. Thelander Consulting to break down the data behind startup option pool sizes by financing amount—a post that you can read here. As a follow-up, we reconnected with Thelander for more need-to-know elements related to employee option pools.
Below are some common questions and answers:
What buckets are total percentages of ownership typically spread across?
Employees and stock option pool, excluding founders
Non-investor board members
What happens if someone falls into more than one bucket, for example a founder also has non-founder equity?
Separate the actual amounts and put them in multiple places. Founder’s equity goes into the founder’s bucket and additional equity the founder gets for their current role goes into the employee and stock option pool. Sometimes investors are also founders and have equity that belongs in more than one place.
When do companies typically grant follow-on refresh options to employees?
Private companies either have formal evergreen programs or they grant refresh options, but it is not a formal program. Either way, options are refreshed after a financing, annually or on an as-needed basis for key employees. The priority is not to let key employees be fully-vested.
When you refresh options, how do you determine the amount?
Most often, the amount is not a fixed percentage but based on performance of the individual. Refresh options can be granted as a fixed percentage of the original grant or based on funds raised.
CLICK HERE to help further build out this data set by participating in the Thelander 2016 Year End Merit Increase & Option Pool Survey. Participants will receive the complete report for no charge.