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How Often Do Employees Of VC-backed Startups Get Stock Options?

Question: How often do venture-backed start-up employees (let’s say non-executives) get stock option grants? Besides the initial grant when they start, how often do “re-up” grants come? Should they be expected after further funding rounds? After significant accomplishments/promotions? Never?

The short answer, at least in the US, is “most of the time.” It’s pretty standard for every employee of a VC-backed company to get at least a minor option grant as part of their compensation. Employees should expect these grants to vest over time (usually four years) and have a one year cliff (which means the person has to be employed for a year to have any of the options vest.)

Regarding the other question, it’s much more variable. In the previous post I talked some about “re-up grants”. In some cases, especially if there is a lot of dilution from a financing, there are¬†occasionally¬†broad grants across all employees post financing. However, in many cases, there aren’t, and employees should expect to take at least some of the dilution from subsequent financings, especially in up-round cases where the value of their underlying equity is increasing.

Additional grants occur on an employee by employee basis in two cases: (1) extraordinary performance (also referred to as a “spot grant” or “spot bonus”) or (2) long tenure – once an employee is fully vested (after year 4) they will often get an additional grant, although this will usually be much smaller than the original grant.

April 3rd, 2012 by     Categories: Equity     Tags: , ,
  • http://www.facebook.com/thomas.hillard Thomas Hillard

    Re: Employees getting equity: A few months ago I moved to Germany to become co-founder at a funded startup. While I was given a considerable amount of equity as part of the incentive to jump on board, there were many employees already at the company who had only been working for their salary/wage or other compensation. We do have an ESOP, but it is reserved strictly for key hires. From what I can see most of the early employees and many of those that join us as we continue to take additional rounds of funding (or exist in any sort of status where employees share some of the risk with us) will also not be offered equity and no one expects them to either. This seems to be a German culture thing, when I started meeting the founders of the company they made it clear Germans are not so interested in ownership as a form of long term security.

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