5 Tips for Founders While Creating an ESOP
WE.VESTR co-Founder & CCO Maarten Graven has put together his tips for founders who are in the process of creating an employee stock ownership plan.
Tip 1: Communicate the number of shares, not only the percentage.
Presentation of equity plans is crucial to get right, and it starts with simplifying the math for your employees. Be clear and direct as to how many shares or options are included in employee grants, along with the percentage. Not only does this help resolve ongoing questions from employee participants, it also sets a standard of transparency.
Tip 2: Live Reporting is Your Friend.
Using equity management tools like WE.VESTR enables live reporting to all shareholders who are participating in your ESOP. Setting up these tools is a good exercise for founding teams, and results in crucial time savings down the line as your ESOP grows.
Tip 3: Teaching Moments Make Memories ✨
Don't forget that learning on the job creates positive memories for your team. ESOPs are complicated, so don't miss out on an opportunity to either learn with your team or to teach your team. Resources for learning the basics of ESOPs are everywhere, but consider starting with our latest webinar on how ESOPs impact recruiting talent and investors.
Tip 4: Focused on Retention? Try a Heavy Tail Scheme.
Linear vesting schedules are most common (often over the course of four years), but other structures can be advantageous for those who are focused on talent retention. In a heavy tail/back-loaded vesting scheme, options and shares are vested at a slower pace in the first years, and then ramp up towards the end.
Tip 5: Early Bird Gets the Worm ?
Investors often mandate ESOPs, or at minimum want to have confidence that founders are making plans to start one. Additionally, starting an ESOP late in the game, say in your Series A, results in a higher impact of dilution for your shareholders. Therefore starting early only helps founders as they scale their companies.
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