Sizing Option Pools In Connection With Financings. We've talked about this issue before here at AVC.
Investors like to require that an unissued option pool is in the pre-money valuation calculation when they put money into early stage companies. If you don't entirely understand what I am talking about here, go click on that link at the start of the post. Hopefully it will explain the issue. This post is about how to size the option pool. Many investors just want the number to be as big as possible. What I like to do, as I mentioned in the post I linked to, is agree with the entrepreneur that the option pool will have enough unissued options to fund all the hiring and retention grants that need to happen between the current financing and the next one.
Let's say you are raising $1mm at $4mm pre-money. Here's a formula I like to use. This approach assumes you have already granted employye equity to the existing team. The bottom line is that sizing up option pools should not be like horse trading. Just Say No: VC terms that can really hurt. Guest Author · December 2nd, 2009 Thanks to Atlas Venture for supporting Venture Hacks this month.
This post is by Fred Destin, one of Atlas’ general partners. If you like it, check out Fred’s blog and tweets @fdestin. And if you want an intro to Atlas, send me an email. I’ll put you in touch if there’s a fit. If you believe the blogosphere chatter, the entrepreneur-VC relationship seems strained like at no time in the past. I see a lot of misguided commentary out there focused on the wrong issues, such as “how can you ask for liquidation preferences and call yourself entrepreneur friendly?” What I wanted to do here instead is focus on a few of the clauses that entrepreneurs should absolutely avoid; the wrong tradeoffs which later expose them to really “losing” their company.
Now we own you: Full ratchet anti-dilution Anti-dilution is usually mild. This gets nasty when serious money has been raised. Your ownership just evaporated. First, let me state that reverse vesting matters to me. Just Say No: VC terms that can really hurt (Part 2) - Venture Ha. Guest Author · December 9th, 2009 Thanks to Atlas Venture for supporting Venture Hacks this month.
This post is by Fred Destin, one of Atlas’ general partners. If you like it, check out Fred’s blog and tweets @fdestin. And if you want an intro to Atlas, send me an email. I’ll put you in touch if there’s a fit. In Part 1, I discussed a few of the term sheet clauses that entrepreneurs should absolutely avoid; the wrong tradeoffs which later expose them to really “losing” their company. “Thank You and Good Luck” for options: Limited exercise period I am going to get some of my colleagues mad at me here. That forces startup employees to fork out cash and often crystallizes tax liabilities. Things I cannot get too excited about Multiple liquidation preferences: This means investors get a multiple of their money back before you see anything. Cumulative dividends: Sometimes an 8% dividend is slapped on, and it accrues over time when it isn’t paid. The trap of complexity Get good advice (duh!)