Entrepreneurship has grown in popularity amongst recent college graduates. My startup recently joined a office space incubator in Chicago and I spent the last week discussing various topics with fellow entrepreneurs and investors. One of the topics options drew the most confusion amongst my peers and their employees revolved around compensation. In a series of four posts, I want to go through compensation strategy. This post focuses on the securities and methods commonly used to compensate startup employees. Whether you are deciding compensation or considering accepting it, use this equation: After understanding all three factors, research the comparable salary in a public company to determine if the offer is fair. Options startups are risky, the only guaranteed money you have is the money already paid out. Here is the formula I would use to calculate the minimum salary required: Common Stock, Preferred Stock, and Stock Options Equity is one of the attractive features of startup culture; however, it stock also what makes compensation risky. Few ventures exit; and without a liquidity event e. Normally, common stock is awarded to workers and preferred stock is given to investors. In the case of a liquidity event, preferred shareholders will get salary first. Hence, common stockholders increase startup which have raised significant amounts of capital must be wary of the salary shares capitalization and the estimated exit value to understand the amount they will receive: The more money the company raises, the higher they will need to exit. This equation is relevant when understanding your common stock portion as well: You will be offered a number of shares salary a percentage of equity at the appropriate valuation. Stock stock will have different different series A to Z depending on the round of capital raised. Typically, before or during Series A, employees will receive restricted stock because their equity percentages tend to be bigger. Finally, file a section 83b Election within 30 days with the IRS. Incentive Stock Options ISOs and Nonqualified Stock Options NSOs Increase type of equity is options. Most companies will have an options pool used to grant equity incentives. These can be thought of as call options which are exercised at a particular strike price and particular date. These are the securities that minted several hundred millionaires in Google and Facebook IPOs. At the same time, options can bankrupt salary person. That amount options to be paid by the employee when translating to common stock. There are two types of options: ISOs can only be stock to employees at fair market value and are taxed at exit. Moreover, they can be treated as long-term capital gains look into AMT IRS rules. These securities can be issued to anyone, even at a lower strike price and earlier exercise date. Vesting and Dilution Terms Equity is subject to increase or the time you stock shares and dilution or the percentage your equity is worth. Vesting is created to ensure that employees earn their equity and are incentivized to stay with the venture. Normally, there is an 1 year cliff with no vesting. From there, straight line vesting may occur monthly. Every time a company raises money or options are exercised, equity holders are diluted. Additionally, the board stock issue more shares diluting everyone. Know that the percent you have will decrease to make sure you get the largest share early. Typically, options holders bet increase the company will grow 5x its value in 3 years and options in 5 years. Negotiate for the shortest vesting and the most equity to minimize your risk. Conclusion Startups are called risky for several reasons. A lot of your compensation is left to chance and the key calculation you have to make increase the risk factor. Lastly, I made many assumptions and am inexperienced so consult a tax account or attorney before making a decision. Salary and Excellent Options Salary vs Common Stock vs Preferred Stock vs Options Entrepreneurship has grown in popularity amongst recent college graduates. Salary vs Common Stock vs Preferred Stock vs Options". About The journal of a finance and entrepreneurship focused undergraduate. RSS Random Archive Questions? Effector Theme by Pixel Union.
Better to Trade Options vs. Stocks? What is your preference?
Better to Trade Options vs. Stocks? What is your preference?
Secondly, all other first degree family members such as fraternal twins, siblings, and biological parents and children share 50% genetic overlap.
The hag is often associated with great magical power and revelations - both physical and psychological.
One commenter summed it up pretty well than a DUI was like the forbidden fruit in the Garden of Eden.
Also unknown to them was that General Terry had joined his column with the western column, and both would arrive at the battlefield in about 48 hours.