What is the proportion of the general staff?

What is the proportion of equity incentive to employees in a start-up company? Are all employees have equity incentives, or are only the backbone of the more excellent staff? In terms of quantity, is there a specific example?

Here is the share of ebay founder Shao Yipo:

From my 1999 home venture to today, in this decade, a lot of things have changed-the returnees outdated, the Earth turtle hegemony (see my previous blog, turtle or tortoise?) when I first returned home, the term "option" did not exist, and it was now heard by every entrepreneur and employee, even my parents. I remember 1999 years, I would like to ask two engineers to become our third and fourth employees, spent struggle, promised that everyone will have 2% of the stock option. They asked me what this stock option was, and I explained it for half a day, looking up the Internet in a dictionary and translating this option into a share option. In the end, they didn't join in and missed the chance to become a multimillionaire in the future.

An option gives an employee a certain amount of strike price-generally a very low price-to buy the company's common stock for a period of time. This right is very valuable. I remember 1999 ebay has a total of 4 million shares, assuming that an employee to get 2% or 80,000 shares, the right price is 1 cents. When the company was sold to ebay in 2003, each share had been split into 10 shares, 4 dollars per share, then the option value is (4-0.01/10) x80,000x10 = 3,200,000 USD (the right price can be ignored).

At a very young age, the company cannot afford to pay very high wages, and the employee should give up the original stable work, this time the option is a very useful thing to motivate the staff. In addition to being able to "attract" employees to join, options can play a role of "retaining" employees. An employee who takes a salary or a bonus and then leaves the company is definitely hurting the company but not the employee.

If the employee takes the option, the situation will be different: first, the option needs a few years (generally 3-5 years) uprights, early to take less, if it is 5 years uprights, he went two years, can only get two-fifths. Second, the General Options agreement stipulates that the resignation of employees in the 90 days after the separation of the need to exercise the option, expire, so even if a penny, a dime dollar options, if it is tens of thousands of shares, employees may have to take out tens of thousands of yuan to get these common shares. Before the company goes public, these common stock is not circulated, just a piece of white paper, so for many employees, buy not buy is a difficult decision. Third, an important employee is gone, causing losses to the company, as well as having to bear the losses as a shareholder, which can also be one of the reasons for keeping an employee in the company, or at least not being able to leave the company and go to a competitor to do something harmful to the company.

Well, speaking of these basic concepts, let's talk about some of the problems that entrepreneurs often encounter at the operational level.

First, the most common question is "how much?" Of course, overall, "How much" depends on the employee's position, salary and the development stage of the company. If I only say these empty words, may not be very helpful, so with my own experience below to give you some approximate figures for reference. Company start-up (defined before VC entry), a Vice-President may be 2% to 5% options; A round of financing, vice president into 1% to 2%; After the second round of financing, vice President becomes 0.5% to 1%; When the C-round or near-IPO, the VP is 0.2% to 0.5%. In addition to the founder of the company's core executives (CTO, CFO, etc.) is generally 2 to 3 times times the VP, Director level is generally VP One-third to One-second, and so on. This is only a approximate estimate, there are many factors in the actual operation. For example, a vice-president might want more options and would be willing to bring his salary down to a low (a person I like because I can see his enthusiasm and confidence in the company). When the company is late, the option is no longer a percentage, but a few shares to talk about.

One might ask me how I define the VP and the Director, because different definitions of people may be very dissimilar. I define VP as a person who can stand alone in one or several company departments and manage at least dozens of people, and is the one you can imagine when a company matures or even goes public, or a company that grows up to be a vice-president. Director is a company early in charge of a department work, but in the future can not see the company to continue to Dudangyimian after maturity, he may become vice president, may also become vice president under the management of one or several branches of the head of the department. The director may also be one of the core and most powerful technical experts. If you have a different definition of Vice president and director, you can adjust the figures I just made.

The second big question is vesting, 3 years, 4 years, or 5 years? Many entrepreneurs feel shorter and better, and I think it's better to grow. To be a good company, three years of success is very fortunate, five years is more normal. You don't want your employees to come over 2.5 to ask you: "My options are all uprights in half a year, please give me a little more." "There is also a provision that when the company is listed or sold, the employee is not uprights options should be all immediately uprights (accelerated vesting)." There is no consensus here. I think we can put the remaining uprights option uprights half, so the staff is more happy, feel more fair. At the same time, not all uprights, can avoid the company to go public or be sold after, many employees are immediately away.

The third big question is how many options are given to people. Ebay was walking the Silicon Valley road, the company almost everyone has options, and hair very early, the company has just started, the staff after the probation period. The advantage of this approach is that we can work together to make the company a success, everyone happy. The disadvantage is because everyone has, everyone "free" to get, many people do not cherish, think the option is not worth a lot of money. Also some companies, go is the other extreme, hair is very late, to the company quickly when the market only hair, and very little, many employees do not, or do more than two or three years old employees. I'm involved in several companies, including the tenant, Donovan, etc., is to adopt a compromise method, or more employees have options, but not "automatic", but the position of the staff or work performance to meet a certain standard and then give, to give is more.

The fourth big question is how much the price of the line should be fixed. If the price of a round is 2 dollars, should the right price be 2 dollars, 1 dollars or 20 cents? Many VC insist to set for 2 dollars, the reason is that if the VC does not make money, the final exit when the stock price less than 2 U.S. dollars, then employees should not make money. I don't quite agree with this view. First of all, the purpose of the option is to attract and motivate employees, the lower the price of the line, the greater the value of each option, the more attractive. Second, when the company finally listed or sold, the option of the right price does not affect the return of VC. For example, a company selling a price of 200 million dollars, each share price is 200 million U.S. dollars minus the priority of liquidation and then divided by the number of all stocks (including preferred stock, common stock and all options, English is called Total outstanding shares on a fully diluted basis). Theoretically, the correct algorithm should be (total amount + option X average line price)/number of all shares, but I have never seen an investment banker or buyer of mergers and acquisitions. Therefore, to set the price of the right to go high is a matter that is not selfish.

Then the option of the right price to set low, how low? It depends on the accountant. In general, an accountant would allow one-tenth per cent of the stock price of a start-up company to be the right price for an option. By the time the company approaches the IPO, the price of the line will slowly close to the preferred price. After listing, the right price must be the current price of the listed stock.

I like the option of this thing, it is a small company to attract talent and retain talent, and people are the most important thing in the company's success.