Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
SlideShare a Scribd company logo

BizSpark On Equity Comp

•Download as PPT, PDF•
•

Rick Lucash presents on equity compensation for startups. He discusses the two main types: restricted stock and stock options. Restricted stock vests over time based on continued employment. Stock options give the right to buy stock at a set price and also vest over time. Lucash provides typical equity allocation percentages for founders, non-founders, and board members to use as a starting point for compensation planning.

1 of 17
Equity Compensation Rick Lucash McCarter & English, LLP 265 Franklin Street Boston, MA 02110 617-449-6568 [email_address] @ricklucash
Twitter Info Tweeters!   Tonight's hashtag is #BizSpark   I am @RickLucash from @McCarterEnglish presenting at @DogpatchLabs #Cambridge
Presenter: Rick Lucash LaunchPad angel group co-founder Attorney with law firm of McCarter & English Member of Emerging Tech Company group Focus on emerging tech companies Organization; Financing IP Employment and Operational Matters The firm is full service and handles all issues including tax; immigration; litigation; other
OVERVIEW How Founders Stock Restricted Stock Options Numbers What’s “typical” Key team members Rank and file Directors and Advisors
TWO CHOICES “Restricted” Stock Options ISO’s Nonqualified Options Caution – Employment Law – not a substitute for hourly/weekly wages for employees
RESTRICTED STOCK Stock that is subject to vesting All or some “Forfeit” unvested stock if leave the company
VESTING Vesting usually based on length of service Example: 25% after 12 months Then 36 monthly installments Can base on Milestones Retention Technique “Retention Grants” – additional grants periodically so employee always partly vested Partial Vesting only on Liquidity?
ACCELERATED VESTING Avoid for people you want to keep after sale of company Key players may demand Rank and file often do not get, either May accelerate only some of equity “Double-trigger” – change of control + termination
RESTRICTED STOCK – TAX Tax on value as it vests – BAD “83(b) election” 30 days to do Pay tax on value when received Then NO more tax until sell And good shot at (low) long term cap gains rate Do you feel lucky? So works best when value is low
OPTIONS Right to buy stock in future at a price set today “ Strike Price” and 409A Consultants who do 409A valuations for emerging companies Vesting Similar issues as with restricted stock ISOs (no tax on exercise) vs. nonquals More important for companies going public
OPTION CONUNDRUM “Use it or lose it” if leave the company Vested options terminate short time after leaving company Cost to exercise Tax on exercise Unvested options evaporate
OTHER CONSTRAINTS Voting obligations First refusal Co-sale (“Tag-along”) Drag-along
HOW MUCH? Target for VCs is 20% for the “sweat equity” (including founders) “Percent of the company” What’s the denominator “Full diluted” Use for initial key hires Brackets for the rest – target a fraction/multiple of salary (based on current value)
TYPICAL NUMBERS Hard to find data sources Compstudy.com – only for participants Cuts data many ways – founder/nonfounder by position; no. of rounds, etc. Askthevc.com 6/4/2007 post Angelblog.net (Canadian): data on boards/advisors
NUMBERS, CONTINUED Be conservative – you can always give more, but not less ( see Alice in Wonderland) Askthevc.com data – Median for range of companies FOUNDERS NONFOUNDERS CEO 9% 5% COO 5% 1.5% CFO 2.5% 1% CTO 4% 1% VP Sales 3.5% 1%
(even) MORE NUMBERS DIRECTORS 1.5 – 2.5% 5 – 6% for active chairman Calculated around end of angel funding May “top up” as get diluted by investors
Equity Compensation Questions? Rick Lucash McCarter & English, LLP 265 Franklin Street Boston MA 02110 [email_address] @ricklucash www.mccarter.com

More Related Content

BizSpark On Equity Comp

  • 1. Equity Compensation Rick Lucash McCarter & English, LLP 265 Franklin Street Boston, MA 02110 617-449-6568 [email_address] @ricklucash
  • 2. Twitter Info Tweeters!   Tonight's hashtag is #BizSpark   I am @RickLucash from @McCarterEnglish presenting at @DogpatchLabs #Cambridge
  • 3. Presenter: Rick Lucash LaunchPad angel group co-founder Attorney with law firm of McCarter & English Member of Emerging Tech Company group Focus on emerging tech companies Organization; Financing IP Employment and Operational Matters The firm is full service and handles all issues including tax; immigration; litigation; other
  • 4. OVERVIEW How Founders Stock Restricted Stock Options Numbers What’s “typical” Key team members Rank and file Directors and Advisors
  • 5. TWO CHOICES “Restricted” Stock Options ISO’s Nonqualified Options Caution – Employment Law – not a substitute for hourly/weekly wages for employees
  • 6. RESTRICTED STOCK Stock that is subject to vesting All or some “Forfeit” unvested stock if leave the company
  • 7. VESTING Vesting usually based on length of service Example: 25% after 12 months Then 36 monthly installments Can base on Milestones Retention Technique “Retention Grants” – additional grants periodically so employee always partly vested Partial Vesting only on Liquidity?
  • 8. ACCELERATED VESTING Avoid for people you want to keep after sale of company Key players may demand Rank and file often do not get, either May accelerate only some of equity “Double-trigger” – change of control + termination
  • 9. RESTRICTED STOCK – TAX Tax on value as it vests – BAD “83(b) election” 30 days to do Pay tax on value when received Then NO more tax until sell And good shot at (low) long term cap gains rate Do you feel lucky? So works best when value is low
  • 10. OPTIONS Right to buy stock in future at a price set today “ Strike Price” and 409A Consultants who do 409A valuations for emerging companies Vesting Similar issues as with restricted stock ISOs (no tax on exercise) vs. nonquals More important for companies going public
  • 11. OPTION CONUNDRUM “Use it or lose it” if leave the company Vested options terminate short time after leaving company Cost to exercise Tax on exercise Unvested options evaporate
  • 12. OTHER CONSTRAINTS Voting obligations First refusal Co-sale (“Tag-along”) Drag-along
  • 13. HOW MUCH? Target for VCs is 20% for the “sweat equity” (including founders) “Percent of the company” What’s the denominator “Full diluted” Use for initial key hires Brackets for the rest – target a fraction/multiple of salary (based on current value)
  • 14. TYPICAL NUMBERS Hard to find data sources Compstudy.com – only for participants Cuts data many ways – founder/nonfounder by position; no. of rounds, etc. Askthevc.com 6/4/2007 post Angelblog.net (Canadian): data on boards/advisors
  • 15. NUMBERS, CONTINUED Be conservative – you can always give more, but not less ( see Alice in Wonderland) Askthevc.com data – Median for range of companies FOUNDERS NONFOUNDERS CEO 9% 5% COO 5% 1.5% CFO 2.5% 1% CTO 4% 1% VP Sales 3.5% 1%
  • 16. (even) MORE NUMBERS DIRECTORS 1.5 – 2.5% 5 – 6% for active chairman Calculated around end of angel funding May “top up” as get diluted by investors
  • 17. Equity Compensation Questions? Rick Lucash McCarter & English, LLP 265 Franklin Street Boston MA 02110 [email_address] @ricklucash www.mccarter.com