Startup Equity: Why are VCs Getting so Stingy with Equity? (Part 3 of an n part series)

6a0134836082f8970c01b7c8b0ac08970b-200wiDoes this familiar?

You had a great idea and turned it into a company. Somehow you got to the point where Venture Capitalists were willing to invest. You may have had less than 50 employees and less than 15% of the company committed to non-founder employees. You grew and kept innovating. Equity compensation was the currency of the day and the hope of tomorrow. Your value grew and more investors came on board. Then the equity spigot became a trickle.

What’s up?

Many VC returns have shrunk in 2016. When VCs see their value melting, they react exactly as you might expect. They become more Continue reading

Employee Stock Options on the Precipice?

6a0134836082f8970c01bb08b4abc0970d-200wiI am declaring February “Stock Option Month” at the Café (at least in relation to my posts). For more than 20 years I have been directly involved in the ebb and flow of employee stock options. When they are great, they are the best. When they are not great, they can be truly destructive. I will call it right now. We are, once again, on the precipice of the downfall of stock options. Consider the headlines below. Continue reading

What is the normal RSU policy for private companies? I recently got an offer from such company and they say that if I work for x years and I leave, I would get x more years to sell the RSUs otherwise they would expire. So if I leave after 1 year and no IPO in the next 2 years, I don’t get anything.

Question: (org. on Quora)

Answer (by Dan Walter)

The most common company policy for RSUs follows the basic structure below:

1) Award of RSUs, generally to be settled in stock when they vest (some companies convert the RSUs to cash)
2) Vesting schedule of 3 years (annually increments or cliff vested) (this period can vary widely).  Vesting is may also be restricted to ONLY occur after a period of time AND a liquidity event like and IPO or Change in Control. — this is becoming far more common.
3) When RSUs vest they are “converted” to real stock and delivered to the participant (or held in electronic book entry).
4) When the individual leaves the company the unvested RSUs are forfeited back to the company. The vested RSUs are now shares (usually of common stock) and the individual is therefore a shareholder.
5) Most companies let people who hold shares keep the shares.  They also usually restricted any transactions so the shareholders have little or no liquidity until a major event.
6) It is uncommon, but not unheard of, for companies to take back vested and delivered shares.  When they do they usually pay the individual the current market price.

NOTE:  There are a ton of exceptions to every single statement above.  The statements above may not represent the best strategy for every (or any) company. Equity compensation is Variable, Variable, Variable, Variable (and up to three more variables) compensation. The type of equity, the number of shares/units/options/etc., the price at the time granted, the price when vested, the currency at the start and end, the vesting schedule and several other components can all be variable within a single award. “Normal” is often not synonymous with “best”.