6-Year Vesting

Babak Nivi

Every team member of AngelList is on a 6-year vesting schedule. Including the founders. Why? Because it takes a long time to build something important. And we want everyone to stick around for a long time. Because we want people who are here for the mission, not a payday. Because it sells prospective hires: the team you’re joining isn’t going anywhere.

 



Filed Under:
Collection: Team
Category: Employee Compensation

MBA Mondays: Retaining Your Employees

Fred Wilson 

The startup world is full of companies where the cash compensation levels are lower than market. This results from the view that the big equity grants people get when they join more than makes up for it. There are a few problems with this point of view. First, the big option grants are usually limited to the first five or ten employees and the big management positions. And second, people can't use options to pay their rent/mortgage, send their kids to school, and go on a summer vacation with the family. Figure out what "market salaries" are for all the positions in your company and always be sure you are paying "market" or ideally above market for your employees. And review your team's compensation regularly and give out raises regularly. This stuff matters a lot. Most everyone is financially motivated at some level and if you don't show an interest in your team's compensation, they won't share an interest in yours (which is tied to the success of your company).

 



Filed Under:
Collection: Team
Category: Employee Compensation

MBA Mondays Live: Employee Equity - Archive and Feedback

Fred Wilson 

The first MBA Mondays Live class was last monday night. I had an incredible time and I can't wait to do it again. There isn't much better in life than standing up in front a bunch of eager learners teaching something you know well. Here's the video of the entire class.

 



Filed Under:
Collection: Team
Category: Employee Compensation

Employee Equity: How Much?

Fred Wilson

Issuing equity to employees does not have to be an art form, particularly once the company has grown into a real business and is scaling up. Using a methodology, whether it is this one or some other one, is a good practice to promote fairness and rigor in a very important part of the compensation scheme.

 



Filed Under:
Collection: Team
Category: Employee Compensation

Employee Equity: Vesting

Fred Wilson 

Vesting is the technique used to allow employees to earn their equity over time. You could grant stock or options on a regular basis and accomplish something similar, but that has all sorts of complications and is not ideal. So instead companies grant stock or options upfront when the employee is hired and vest the stock over a set period of time. Companies also grant stock and options to employees after they have been employed for a number of years. These are called retention grants and they also use vesting.

 



Filed Under:
Collection: Team
Category: Employee Compensation

Employee Equity: The Option Strike Price

Fred Wilson 

If the company you are joining is early in its development, the strike price will likely be low and you don't have to pay too much attention to it. But as the company develops, the strike price will rise and it willl become more important. If the Company is a "high flyer" and is headed to a big exit or IPO, pay a lot of attention to the strike price. A low strike price can be worth a lot of money in a company where the value is rising quickly. In such a situation, if there has been a recent 409a valuation, you are likely in a good situation. If the company is a high flyer and is overdue for a 409a valuation, you need to be particularly careful.

 



Filed Under:
Collection: Team
Category: Employee Compensation

Employee Equity: The Liquidation Overhang

Fred Wilson 

If your company has a lot of "liquidation preference" built up over the years, and if you think it is not worth that amount in a sale situation, your company is in a liquidation overhang situation and your employee equity is not worth anything at this very moment.

 



Filed Under:
Collection: Team
Category: Employee Compensation

Employee Equity: Options

Fred Wilson 

If you are a founder, you are most likely going to use stock options to attract and retain your employees. If you are joining a startup, you are most likely going to receive stock options as part of your compensation. This post is an attempt to explain how options work and make them a bit easier to understand.

 



Filed Under:
Collection: Team
Category: Employee Compensation

Employee Equity: Dilution

When you start a company, you and your founders own 100% of the company. That is usually in the form of founders stock. If you never raise any outside capital and you never give any stock away to employees or others, then you can keep all of that equity for yourself. It happens a lot in small businesses. But in high growth tech companies like the kind I work with, it is very rare to see the founders keep 100% of the business.



Filed Under:
Collection: Team
Category: Employee Compensation

Employee Equity

Fred Wilson 

Employee ownership is such an important part of startup culture. It reinforces that everyone is on the team, everyone is sharing in the gains, and everyone is a shareholder. I can't think of a company that has come to pitch us that has not had an employee equity plan. And I can't think of a term sheet that we have issued that didn't have a specific provision for employee equity. It is simply a fundamental part of the startup game.

 



Filed Under:
Collection: Team
Category: Employee Compensation