By being disciplined about how you grant options; i.e. to whom, when, and how many. Three things follow: a) less to unwind when things get hairy, b) great incentives concentrated on your star players, less dead weight on the cap table, so you just end up with a better company (and therefore lower probability of a downround), and c) more board and investor support when you need it, because you've been seen to protect their dilution along the way.
Yeah, most software companies default to giving equity to everyone when they are hired but if companies can be better with dilution by not giving too much away (top quartile benchmarks, too many advisors, too much management, etc) then the convos are a lot easier
I have heard some companies exchanging equity. forfeit you stock options for new grants (but usually less of them). This is usually harder to because tender offer rules would def apply (I think)….but may make sense if the value feel a lot and you want to bring the price all the way down but want to do it for less options (and potential dilution)
Companies could just issue more equity but then you create a potentially bigger dilution problem
Lastly, if you don’t want to deal with any of that then you could just grow really fast and be way more valuable :)
This is all so much easer if you are careful about how you issue options in the first place.
Tell me more about what you mean
By being disciplined about how you grant options; i.e. to whom, when, and how many. Three things follow: a) less to unwind when things get hairy, b) great incentives concentrated on your star players, less dead weight on the cap table, so you just end up with a better company (and therefore lower probability of a downround), and c) more board and investor support when you need it, because you've been seen to protect their dilution along the way.
Yeah, most software companies default to giving equity to everyone when they are hired but if companies can be better with dilution by not giving too much away (top quartile benchmarks, too many advisors, too much management, etc) then the convos are a lot easier
Another great article! Curious your thoughts on other options for underwater options (say that 5 times fast 😅)
I have heard some companies exchanging equity. forfeit you stock options for new grants (but usually less of them). This is usually harder to because tender offer rules would def apply (I think)….but may make sense if the value feel a lot and you want to bring the price all the way down but want to do it for less options (and potential dilution)
Companies could just issue more equity but then you create a potentially bigger dilution problem
Lastly, if you don’t want to deal with any of that then you could just grow really fast and be way more valuable :)