Stock Options - The 411 On Startups (tm)

Stock Options versus Stock Warrants – What’s the Difference?

May

2013

I frequently hear clients and some of their advisers talk about “stock options” and “stock warrants” and there is often considerable confusion between the two. In this post, I’ll briefly describe the major distinctions between these instruments and how each can be used in a privately held company. Stock options are issued to key employees, ...

Valuation and Option Pool — Understand the trade off

May

2012

One of the more contentious things in the negotiation between an entrepreneur and a VC over a financing, particularly an early stage financing, is the inclusion of an option pool in the pre-money valuation. As my friend Mark Pincus likes to say, “it’s just another way to lower the price”. I’ll accept that critique. And ...

Vesting Calculator for Restricted Stock and Stock Options

May

2012

Options and restricted stock in a startup are subject to vesting. This is done to associate the rewards of equity ownership with the time and effort put into creating value for the company. Although vesting schedules can be infinitely flexible in theory, in practice they don’t vary that much. You’ll find that the majority of ...

Option Pool, Post-Money and True Pre-Money. Trade Pool for Valuation.

May

2012

One of the common areas of misunderstanding, and therefore conflict, in financing negotiations has to do with the relationship between the pre-money valuation and the option pool. Investors want the company to have an adequate option pool for future hiring and it is customary to include the pool in the pre-money valuation. Some entrepreneurs see ...

Splitting the Founders Stock — Amount Depends on Contribution

Apr

2012

One of the first tough decisions that have to make is how to allocate or split the equity among co-founders. The easy answer of splitting it equally among all co-founders, since there is minimal value at that point, is usually the worst possible answer, and often results in a later startup failure due to an ...

Venture Hacks Series A Cap Table, with Note Conversion and Option Pool

Apr

2012

This is a Youtube video explanation of a cap (capitalization) table example that is available online. It may take a while get your head around the terminology and concepts involving the option pool and note conversion, and their impact on valuation. It is worth taking time to understand this if you want to see how ...

Orrick – Start-Up Tool Kit – Term Sheet Creator – Start-Up Forms Library

Sep

2011

There are many items useful to entrepreneurs on the site including: Example cap (capitalization) table spreadsheet Term Sheet Creator Non-disclosure Agreements Employment Agreements Stock Option plans Confidential Information and Invention Assignment Agreement for Employees & Consultants and much more …..

Startup Stock Options Tax HOWTO

Sep

2008

Warning! I am not a lawyer, and I am not a tax accountant. The information in this document is correct, to the best of my belief, at this writing (2000). It’s distributed in the hopes that it will be useful, however, it shouldn’t be used as financial advice. You should see a professional tax or ...

Stock options, employee stock purchase plans, ESPPs, restricted stock, restricted stock units, RSUs, stock appreciation

Aug

2008

Making you smarter about stock options, incentive stock options, employee stock purchase plans, ESPPs, restricted stock, restricted stock units, RSUs, stock appreciation rights, SARs, performance shares, and other stock compensation for employees and executives.

Take Stock When Using Stock In Trade Part 2 — MIT

Aug

2008

Good short story on issuing options as opposed to plain stock. Discussion of incentive (ISO) and non-qualified (NQO) tyspes.