Note that the author of this post is the CEO of a company offering a solution to this problem. The whole post is an ad (albeit a compelling one). I just wish he'd put a disclaimer up top to make that more clear.
Broken cap tables
21–30 of 32 posts
Re: Broken cap tables
#22The 90 day exercise window for stock options really catches some non-finance employees off guard. They don't realize the high amount of tax and investment that has to be made for illiquid shares (which are still pretty risky for most start ups). That being said, there are a few options that I feel more people should know about including the Employee Stock Option Fund ( http://esofund.com/ ). If you fall within the 90…
Sam Altman advocates for a longer exercise window [0] as part of his piece on employee equity. More early-stage companies are adopting it, but it's not without complications. For example, 90 days after termination ISO shares convert to NSO shares, which are a different beast for taxation purposes -- employers/employees rarely understand ISO shares, let alone ISO+NSO. [0] http://blog.samaltman.com/employee-equity [1]…
I think thats a good move in the right direction, but the fact remains that startups are risky in general. Taxes + the exercise price of a slightly less risky startup (higher strike price) can unexpectedly add up to quite a bit of money for employees less familiar with stock options. It would be cool to find ways to diversify that risk or sell part of it to someone who is willing to take it on.
Re: Broken cap tables
#23I was just looking at eShares for their 409a valuation service, which I see as a must-have, whereas the cap-table management I see more as a nice-to-have at this stage. I can absolutely see the need for more rigorous controls, auditing, paper trail, etc. in the future but for now Excel is enough.
The point about complex calculations in prose instead of just writing the algorithm is also a good one. I find anti-dilution clauses in particular to be nearly impossible to parse versus just stating the desired scale. IMO don't be afraid to trample on tradition and actually write the formula in the docs instead of the prose. Likewise, I email my stock certificates as digitally signed PDFs.
I like choppaface's point about a basic, open-source starting point. Not necessarily free by the way! I just don't like the idea of the single point of truth for sensitive company data like that sitting on someone else's servers.
Re: Broken cap tables
#24Note that the author of this post is the CEO of a company offering a solution to this problem. The whole post is an ad (albeit a compelling one). I just wish he'd put a disclaimer up top to make that more clear.
The first sentence of the post is "We see a lot of cap tables at eShares". This kind of implies that he at least works there.
Re: Broken cap tables
#25Could not agree more: "the practice of equity administration is systemically biased against employees" (and to protect companies and investors). Equity admin isn't just a mess for startups but can be a mess for mature companies, too. If you have a chance to interview a manager before accepting an offer, I highly recommend asking them how well Finance has their shit together. You don't want to, say, get in a fight wit…
Founders need to hire one really good finance person early on who can stay on top of this and all the other legal/financial issues. Most of this BS comes from the cover-up because it is hard to fix these issues after the fact. Hire your own person who is bought into the team. Rent-a-cfo's usually don't care enough or want to get their hands dirty getting it right the first time.
Agreed. Our CFO tried to help me but was transitioning out to spend more time with his family. Would have loved to have worked with the CFO instead of the GC. (This was also a time when the company had no real HR department and the GC was effectively head of HR).
Re: Broken cap tables
#26Note that the author of this post is the CEO of a company offering a solution to this problem. The whole post is an ad (albeit a compelling one). I just wish he'd put a disclaimer up top to make that more clear.
You've got to appreciate the irony of accusing someone of commercializing cap table management, right?
Re: Broken cap tables
#27> Think of a cap table as a blockchain of a company’s liabilities.
Are crypto-currencies now so familiar that we are explaining other concepts in terms of them, and not the other way around?
Re: Broken cap tables
#28>> Delaware corporate law requires companies to issue stock certificates but most rarely do.
I don't think this is actually true. If I recall correctly, it's possible to set your company up in a way in which stock certificates are actually not required. Delaware corporate law explicitly recognizes this possibility (http://delcode.delaware.gov/title8/c001/sc05/#158).
And, as a recovering lawyer who billed far too much time printing out stock certificates and attending to other inane cap table management issues, I'd strongly recommend asking your lawyer to set your company up as uncertificated if it isn't already. There's no real value to the company to issue actual certificates (they don't provide any additional legal "truth" that doesn't already exist in other legal agreements), but there are consequences to screwing up or misplacing a stock certificate.
Re: Broken cap tables
#29Could not agree more: "the practice of equity administration is systemically biased against employees" (and to protect companies and investors). Equity admin isn't just a mess for startups but can be a mess for mature companies, too. If you have a chance to interview a manager before accepting an offer, I highly recommend asking them how well Finance has their shit together. You don't want to, say, get in a fight wit…
Founders need to hire one really good finance person early on who can stay on top of this and all the other legal/financial issues. Most of this BS comes from the cover-up because it is hard to fix these issues after the fact. Hire your own person who is bought into the team. Rent-a-cfo's usually don't care enough or want to get their hands dirty getting it right the first time.
While I'm aligned with the goal, it's burdensome for early-stage startups to hire FTEs to deal with what is essentially administrative paperwork. All startups have this problem, so it feels like one that should be solved by software. Hence eShares.
FD: I work at eShares.
Re: Broken cap tables
#30In the early 2000's, I exercised some options and did receive the stock certificate. Of course, they were worthless anyway (company was "acquired" for well under the capital put in.)
n.b. Your statement does not mean shares were worthless, only that they were worth less than you paid. Salvage value for large investments is painful, but still worth collecting.