Asher Siddiqui’s Post

Insightful read re: employee equity!

Navigating equity compensation for early employees can be challenging for startup founders. After unsuccessfully searching for an approach we felt comfortable sharing with founders, we decided to create one ourselves. Today, we're excited to share a new framework to make sizing equity grants easy and transparent for founders. In this post, we cover: -🔍 Key questions to ask when creating early equity grants -📊 Important definitions and concepts -💡 Guidelines for equity allocation, including multipliers, premiums, and discounts -📈 Tips for managing equity as your company grows -🧮 An easy-to-use equity calculator to perform this exercise on your own Whether you're a Pre-Seed, Seed, or Series A founder, this guide will provide you with the information needed to confidently make informed decisions about equity grants for your team. https://lnkd.in/gji_pU6s

Most startup founders don't have any interest, knowledge or experience in accounting. Therefore, it's not surprising that so many early stage companies struggle or straight up fail when it comes to their first accounting & finance hires. We teamed up with Furey to provide some much needed guidance on how to approach those critical hires in order to position your startup for financial success, especially when it comes time for that next fundraise.

Did you know that after the Series A round every time a company raises capital it decreases the likelihood that the employees will walk away with money in the exit. But truth is that it also I ncreases the UPSIDE Potential of equity for employees (and founders), depending on the terms of the raise. We don’t talk about these things openly because people want to hire the best possible talent. Increasing potential upside and increasing risk - is the result of raising capital is something I talk about with founders I back. I love the growth of venture capital - although it’s impacts aren’t always understood. Employment at VC-backed comapnies increases the risk for them, compared to established cash flowing businesses or large publicly traded company. Startup options of today’s companies are comparable to the stock options of publicly traded companies in the 2003 year… with less liquidity. There are lots of reasons I want to share these things with the 🌎 World: 1) it attracts the RIGHT talent to startups (not displaced corporate employees or high level corporate executive that look at the startup life with intrigue) 2) It helps employees make informed decisions 3) It helps founders understand how their decisions impact all stakeholders (employees). AND Finally Because less than 5% of the world understands how Venture Capital works BUT employment at U.S. VC-backed companies grew 960% from 1990 to 2020, which is 8x growth compared to Non-VC-backed companies. So you are likely impacted by all the things above. Still small in comparable size but growing people should learn about how it impacts them. #Landons_Thoughts #Employment #VC #RaisingVC What surprises you the most about my thoughts? Do you disagree with anything? Early morning post because I fly ✈️ to Arizona this morning (Tucson here I come).

Do you hate waiting for your equity to vest over four years? Even the equity of founders vests over time! Why? Imagine one out of two co-founders leaves after a year. If they retain their entire stake, the remaining founder would have no equity to bring in a new partner. The departing founder would also receive all the benefits of the company's future growth without contributing as much effort as the remaining founder. Many investors also insist on vesting of founders' equity. How does vesting happen? There is no fixed vesting criteria. Their vesting schedule might be the same as the standard ESOP vesting - 25% at the end of the first year, 1/48 every subsequent month over three years. Or, they may start fully vested but give the company buyback rights in case of their early departure. I've also seen eight-year vesting periods for founders of billion-dollar startups! How is it different from employee’s vesting? The primary difference between employees and founder vesting is that the founders have triggers for full vesting, called acceleration clauses. If the startup is acquired, IPOed, or the founder is terminated without cause, their entire unvested equity gets vested immediately. So, whether a founder or an employee, everyone has to wait for their equity to vest.

Startups: Don’t Let a Lack of Talent Hold You Back Starting a business is hard enough without worrying about finding qualified financial help. As more startups emerge, the talent pool seems to get thinner. But that doesn’t mean your growth has to stall. At Strategic Ledger Consultants, we specialize in working with startups to craft tailored accounting strategies and business plans that help you thrive—even in a tight talent market. Let’s discuss how we can keep your momentum going, no matter the hiring challenges. #StartupSuccess #BusinessStrategy #AccountingHelp #TalentSolutions

As presented in our US Startup Salary Guide, there's been a notable shift in the dynamics of CFO salaries, particularly at early-stage ventures📊 While CFOs have traditionally been highly compensated, there's a growing recognition of the broader remit and responsibilities shouldered by VPs of Finance in early-stage startups, leading to increased demand and compensation 💸 Meanwhile, controllers have emerged as indispensable players. Their role in cash control and management is pivotal, ensuring the financial stability and prolonged runway for startups. Understanding these trends is crucial for both finance professionals and startup leaders. If you want to learn more you can download our guide and watch our launch event for further details ⬇️ #financesalaries #cfosalary #compensationandequity

The craziest stat nobody is talking about: New hire equity offers are down 36%(!!) from November 2022. Why? 1) Startups haven't refreshed their employee stock option pool, and 2) candidates don't have leverage (eg competing offers) to negotiate for more. It gets worse if a company hasn't reset its valuation since the ZIRP days. Not only are equity offers 36% lower, the valuation of the company is not marked to the current market reality. So you're fewer shares at a share price that doesn't make sense. Many people made life-changing money on startup equity from 2010-2022. It's much harder to find that alpha in today's world. Thanks for the incredible insights, Peter Walker.

How Can Rule 701 Help Startups Retain their Best Employees? Unlocking employee potential is key for startups! Rule 701 is the SEC’s gateway, allowing private companies to offer equity without the hefty process of SEC registration. This safe harbor exemption is pivotal for startups aiming to reward and retain talent through stock options legally and efficiently. Our article outlines Rule 701’s benefits, from administrative cost savings to potential long-term gains for employees. Check out our blog on the basics of Rule 701 and what makes it a helpful recruiting tool. https://lnkd.in/gxhTaY9T #Rule701 #StartupGrowth #EquityCompensation

Decoding Equity for Startups: How Much to Set Aside for Employees? 📊 One of the pivotal questions I often encounter from founders is: "How much equity should we set aside for our employees?" Well, the answer isn't straightforward, but thanks to data from Carta’s analysis of over 20,000 companies, we've got some insights to share. 🔑 The Employee Option Pool Size Cheat Sheet The accompanying image provides a breakdown of how much equity companies at various valuation tiers are allocating for employee option pools: - Startups valued at $1M to $10M hover around a median of 12.9%, with more generous companies going up to 18.5%. - As valuations increase, the median tends to rise modestly, with those in the $1B to $10B range earmarking as much as 19.6% of equity for their teams. - The trend? A higher valuation correlates with a larger equity allocation, acknowledging the critical role employees play in a company's growth. This data serves as a benchmark for startups looking to attract top talent without over-diluting founders' shares. It's a delicate balance but a crucial one in fostering a motivated, invested team. As we dive deeper into 2024, understanding such metrics will be vital for startups navigating fundraising and scaling. For all founders, use this cheat sheet as a starting point for making informed decisions on equity distribution. What's your take on these numbers? Thanks for sharing as always Peter Walker 💡 #StartupEquity #Founders #EmployeeCompensation #VentureCapital