Equity/Stock option agreement template for employers

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Equity/Stock option agreement template for employers

Samuel Serra-2
Hi All,

I am in the process of recruiting an employee for my start-up and as  
you would expect there are some equity involved :-)
The Salary Structure I want to put in place is as follow: Fixe Monthly  
Salary+ Commission + x Equities vested over 4 Years
For the equity part, am I right to assume that it will require a stock  
option agreement? And has any of you a template I could use for that  
purpose or does it need the input of a solicitor?

Thanks in advance

Sam



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Re: Equity/Stock option agreement template for employers

FTired
Administrator
Agreements = Solicitor :-)

There are I am sure some templates, but before you draw up a stock option agreement, you need to have a stock option plan I would say for the company as a whole. Hope you see what I mean. For example lets imagine you pay someone  in stock, will that be a percentage of the total, or a percentage of the stock option pool, how large is this pool, how many shares does it have in it.

I would try to (not always possible) keep it simple, offer him cash A and cash B, cash A, is real currency, which you pay him, cash B is what will get converted to equity at a certain event in the future, i.e when you raise funding or whatever, i.e when you really wish to invest time putting all this together. Of course some would say that its best to get it all done at the start, but to me the option plan, and equity structure is always changed when a investor comes in, they always realign the cap tables.

Iqbal


From: Samuel Serra <[hidden email]>
To: [hidden email]
Sent: Fri, 14 May, 2010 14:57:35
Subject: [entrepreneur-1056] Equity/Stock option agreement template for employers

Hi All,

I am in the process of recruiting an employee for my start-up and as you would expect there are some equity involved :-)
The Salary Structure I want to put in place is as follow: Fixe Monthly Salary+ Commission + x Equities vested over 4 Years
For the equity part, am I right to assume that it will require a stock option agreement? And has any of you a template I could use for that purpose or does it need the input of a solicitor?

Thanks in advance

Sam



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Re: Equity/Stock option agreement template for employers

Samuel Serra-2
In reply to this post by Samuel Serra-2
Hi Iqbal,

If I understand rightly, I could say that total Salary =- £50K/Year for instance. But I will pay in cash £30K and £20K will be converted in shares when (and if) I raise my first round for instance. So I guess the number of shares he/she will get will be based on the valuation at the time of the deal? 
What happen If I don't manage to raise cash but still keep the company going, do I need to commission an independent valuation at this point?

Thanks

SAM

On 14 May 2010, at 15:29, iqbalgandham wrote:

Agreements = Solicitor :-)

There are I am sure some templates, but before you draw up a stock option agreement, you need to have a stock option plan I would say for the company as a whole. Hope you see what I mean. For example lets imagine you pay someone  in stock, will that be a percentage of the total, or a percentage of the stock option pool, how large is this pool, how many shares does it have in it.

I would try to (not always possible) keep it simple, offer him cash A and cash B, cash A, is real currency, which you pay him, cash B is what will get converted to equity at a certain event in the future, i.e when you raise funding or whatever, i.e when you really wish to invest time putting all this together. Of course some would say that its best to get it all done at the start, but to me the option plan, and equity structure is always changed when a investor comes in, they always realign the cap tables.

Iqbal


From: Samuel Serra <[hidden email]>
To: [hidden email]
Sent: Fri, 14 May, 2010 14:57:35
Subject: [entrepreneur-1056] Equity/Stock option agreement template for employers

Hi All,

I am in the process of recruiting an employee for my start-up and as you would expect there are some equity involved :-)
The Salary Structure I want to put in place is as follow: Fixe Monthly Salary+ Commission + x Equities vested over 4 Years
For the equity part, am I right to assume that it will require a stock option agreement? And has any of you a template I could use for that purpose or does it need the input of a solicitor?

Thanks in advance

Sam



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Re: Equity/Stock option agreement template for employers

FTired
Administrator
In reply to this post by Samuel Serra-2
You could say that £20 will be given as equity based on todays valuation. If you give it to him based on tomorrow valuation he loses out, but that is a point of negotiation. Or you could say you will give him £20k converted to shares at x% discount to tomorrow valuation.

You could also remove the risk and say you will give it to him in guaranteed in cash (if you raise funding) or convert to equity etc etc. Please note though VC's dislike having there money walk out the door in cash terms based on prior salary agreements, they would prefer it in equity.

Iqbal


From: Samuel Serra <[hidden email]>
To: [hidden email]
Sent: Fri, 14 May, 2010 15:57:31
Subject: Re: [entrepreneur-1056] Equity/Stock option agreement template for employers

Hi Iqbal,

If I understand rightly, I could say that total Salary =- £50K/Year for instance. But I will pay in cash £30K and £20K will be converted in shares when (and if) I raise my first round for instance. So I guess the number of shares he/she will get will be based on the valuation at the time of the deal? 
What happen If I don't manage to raise cash but still keep the company going, do I need to commission an independent valuation at this point?

Thanks

SAM

On 14 May 2010, at 15:29, iqbalgandham wrote:

Agreements = Solicitor :-)

There are I am sure some templates, but before you draw up a stock option agreement, you need to have a stock option plan I would say for the company as a whole. Hope you see what I mean. For example lets imagine you pay someone  in stock, will that be a percentage of the total, or a percentage of the stock option pool, how large is this pool, how many shares does it have in it.

I would try to (not always possible) keep it simple, offer him cash A and cash B, cash A, is real currency, which you pay him, cash B is what will get converted to equity at a certain event in the future, i.e when you raise funding or whatever, i.e when you really wish to invest time putting all this together. Of course some would say that its best to get it all done at the start, but to me the option plan, and equity structure is always changed when a investor comes in, they always realign the cap tables.

Iqbal


From: Samuel Serra <[hidden email]>
To: [hidden email]
Sent: Fri, 14 May, 2010 14:57:35
Subject: [entrepreneur-1056] Equity/Stock option agreement template for employers

Hi All,

I am in the process of recruiting an employee for my start-up and as you would expect there are some equity involved :-)
The Salary Structure I want to put in place is as follow: Fixe Monthly Salary+ Commission + x Equities vested over 4 Years
For the equity part, am I right to assume that it will require a stock option agreement? And has any of you a template I could use for that purpose or does it need the input of a solicitor?

Thanks in advance

Sam



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Re: Equity/Stock option agreement template for employers

Samuel Serra-2
In reply to this post by Samuel Serra-2
If Based on Tomorrow valuation what sort of discount is acceptable or is there no rule of thumb?. It's just I would find it hard to value the business now (pre-revenue) and at least the investment could act as an independent valuation for the business.


S.



On 14 May 2010, at 16:03, iqbalgandham wrote:

You could say that £20 will be given as equity based on todays valuation. If you give it to him based on tomorrow valuation he loses out, but that is a point of negotiation. Or you could say you will give him £20k converted to shares at x% discount to tomorrow valuation.

You could also remove the risk and say you will give it to him in guaranteed in cash (if you raise funding) or convert to equity etc etc. Please note though VC's dislike having there money walk out the door in cash terms based on prior salary agreements, they would prefer it in equity.

Iqbal


From: Samuel Serra <[hidden email]>
To: [hidden email]
Sent: Fri, 14 May, 2010 15:57:31
Subject: Re: [entrepreneur-1056] Equity/Stock option agreement template for employers

Hi Iqbal,

If I understand rightly, I could say that total Salary =- £50K/Year for instance. But I will pay in cash £30K and £20K will be converted in shares when (and if) I raise my first round for instance. So I guess the number of shares he/she will get will be based on the valuation at the time of the deal? 
What happen If I don't manage to raise cash but still keep the company going, do I need to commission an independent valuation at this point?

Thanks

SAM

On 14 May 2010, at 15:29, iqbalgandham wrote:

Agreements = Solicitor :-)

There are I am sure some templates, but before you draw up a stock option agreement, you need to have a stock option plan I would say for the company as a whole. Hope you see what I mean. For example lets imagine you pay someone  in stock, will that be a percentage of the total, or a percentage of the stock option pool, how large is this pool, how many shares does it have in it.

I would try to (not always possible) keep it simple, offer him cash A and cash B, cash A, is real currency, which you pay him, cash B is what will get converted to equity at a certain event in the future, i.e when you raise funding or whatever, i.e when you really wish to invest time putting all this together. Of course some would say that its best to get it all done at the start, but to me the option plan, and equity structure is always changed when a investor comes in, they always realign the cap tables.

Iqbal


From: Samuel Serra <[hidden email]>
To: [hidden email]
Sent: Fri, 14 May, 2010 14:57:35
Subject: [entrepreneur-1056] Equity/Stock option agreement template for employers

Hi All,

I am in the process of recruiting an employee for my start-up and as you would expect there are some equity involved :-)
The Salary Structure I want to put in place is as follow: Fixe Monthly Salary+ Commission + x Equities vested over 4 Years
For the equity part, am I right to assume that it will require a stock option agreement? And has any of you a template I could use for that purpose or does it need the input of a solicitor?

Thanks in advance

Sam



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