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Mornin' Sifted Reader,

42.7% of you opened our last newsletter and 81 of you joined us. Thank you!

Last week, we asked if you’ve been offered stock options at your startup. 40% of you have — but 20% of you think you deserve more. So this week, we’re taking a look at options and equity. What is fair? How can you figure that out? And why bother offering them (or taking them) at all?

We’re also taking on a subject close to home for Amy — what it’s like to be the first employee at a startup.
Share Startup Life
 Amy and Anisah 🧡

\How to

Figure out what stock options to offer

Michelle Coventry has been working in the people and talent space for over 20 years and, not only does she really know her stuff, is generous with her time and knowledge to those coming up in startupland. She is also VP of people operations at autonomous car technology startup FiveAI and part-time talent advisor at VC Kindred Capital. We chatted to her about how to set up stock options schemes and the value they can bring to European startups:

So what actually are stock options? Options give team members ownership in the company. They give people the right, without obligation, to convert their options into shares at a pre-agreed price (known as the strike price). Most have a four year ‘vesting period’ with a one year ‘cliff’. So although options are issued to you at the start of a contract, their ownership is only transferred to you on your first anniversary. At this point, you can exercise your option to buy 25% of your agreed shares. The rest then continues to vest (transfer of ownership) on a monthly basis. Index Ventures has put together this great guide to stock options for European companies.

Determine the size of your options ‘pool’. How much equity do you want to set aside for the team? The standard is 10% but some companies can be generous and make it around 15%, especially when setting it up for founding teams. Advice will come from peers, VCs, mentors... who will all have opinions but ultimately the founder, alongside their board, must determine the scheme. You can set it up, arguably, in a spreadsheet for the first 80-100 hires. An HR system, like Figure, should have the functionality to set it up and model out the scheme. 

Who should have a piece of the pie? Some founders will only give options to the founding team and others will give them to the whole company — although that doesn’t mean everyone will exercise their right to purchase shares. It’s important to discuss it with your team. Some will be excited by it, others won’t know what it is and for others hard cash is more important because of dependencies or less appetite for risk. 

You have to budget and spend equity like you would cash. Like cash, it will change with company growth. At every new round of funding, options will refresh as you set up a new cap table and there will also be new people to bring in. So, budget your options pool as part of your financial planning. For example, when mapping out new jobs, budget in their salaries and stock options. At FiveAI, we have different bands of salary and stock options for each job.

Equity is part of the total compensation. At the early stages of a company, founders rely on others to bring life to their idea. It’s only fair and right to give equity to those who are taking early risk as their work will have a direct impact on the value of the company. Equity lets them gain in the upside — it can genuinely change your life. 

Education for your team is key to ensure the scheme is beneficial to all parties. Articulation of stock options in Europe and ‘equity culture’ aren’t as advanced as in the US, mainly because we don’t have as many success stories and there are complex regulations and tax issues that differ per country. This is a problem because it undervalues a genuine reward. Invest in education within your team. Talk about equity value at all hands and at salary reviews — it should be a powerful retention tool. Make the knowledge of its mechanics simple and accessible in company wide documentation.  

Remote work makes admin more complex. People wanting to work anywhere increases the admin overheads for allowing that freedom. [Stock options] rules and regulations are different in each country. Although you can’t provide exactly the same for everyone, you can create representative and reflective schemes. Get advice on workarounds — there are phantom stock schemes which work and pay out slightly differently in a liquidation event.

Anisah

\A message from our sponsor Google for Startups

Get your startup's website and app reporting done using just one tool 

Part three of Google's 'Startup School: Google Analytics' will train founders on digital performance, and how they can optimise for success. 

Join here.

\Feature

The first employees

Joining a startup at launch can be lonely, it can be challenging — and it can be a route to riches.

The first employees at TransferWise, Qonto, GoCardless, Wolt and Gousto tell Amy about the highs, the lows — and how taking stock options worked out for them.

Read the feature here.

\On the Subject of...

Equity and options

🤔 What’s the difference between a share and an option? More and more startups want their teams to have ownership and feel invested in the company’s success. With so many ways to distribute equity, Vestd have put together a helpful guide for setting up the right scheme. 

🇺🇸 Europe vs US. What can companies here learn from employer equity programmes across the pond?

💵Europe has loosened rules on stock options, but employees just want hard cash. An excellent read from the Sifted archives.

📈 Stock options are not optional. In this video, Scale Ireland, Deutsche Startups, DG Connect and Index Ventures discuss the necessity of stock options to compete for top talent, especially with US companies.

\People Moves

Hopin has a new head of design. Buck Wilson, founder of boutique design agency Horrible, says he’s joining “to head design on a new project. It’s big, it’s ambitious, and it’s really daunting”. Fancy getting involved? He’s hiring.

Kry loses its chief strategy officer. Sabina Wizander, who joined the digital health giant when it had fewer than 20 employees, is heading into the world of VC as Creandum’s first female partner.

Sequoia also gets a new partner. The famous US VC firm’s European outpost has announced its third partner — Anas Biad, formerly an investor at VC firm Silver Lake. 

Adeola Ogunwole joins seender. The digital freight forwarder is on a hiring spree (its team count is now 840) and now has a new senior director of marketing and communications. Ogunwole was most recently head of digital media at HERE.

Got any people intel you'd like to share with us? We'd love to hear it... 😉 

\Smart Reads

1) Building a game. Games artist Jessie Van Aelst has been keeping an excellent Twitter thread on the development steps of Alba: A Wildlife Adventure. 

2) Intro to cryptos (in French). Sifted contributor Nicolas Colin chats internet history, cryptocurrency and stakeholder economy with Thibauld Favre, CEO of US fintech Fairmint. 

3) Why won’t it work? Rick Song, founder of identity verification startup Persona, likes holding pre-mortems before making new hires, building new features or introducing new processes. It’s a pretty cool idea. 

4) How should you structure your data team and how does that change as you scale? 

5) Being kind is good for business. After a team chat about chief empathy officers, I read this by Harvard Business Review. Shouldn’t kindness be everyone’s role and not outsourced to one person though? Would love to hear your thoughts.

Read something you think everyone else should too? Send it on over to Anisah.

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\Book of the Week

Work Better. Live Smarter. Be Happier. By Courier

I’m a big fan of sustainably grown ‘lifestyle’ businesses that create positive societal impact so it’s no surprise that I love Courier’s first book about building businesses on your own terms. 

It's split into two parts: the first section is filled with inspirational profiles like that of Freddie Harrel, founder of black hair company Rad Swan and Coach Cory, founder of running community Track Mafia. It's peppered with quick 'Get Started' guides for starting up in industries like retail, media, food and drink. The fashion guide, for example, had excellent pointers for finding suppliers and manufacturers. 

The second section covers all the foundations of running a business — from nailing the idea and funding it, to marketing and solving team conflict. Key takeaways: 

1) Community building. A relationship with customers is needed for company growth. Customers want places they can come together and align with others, as well as receive high quality content from brands. Micro communities are on the rise, with companies like Glossier bringing together small groups of their most highly engaged loyal customers for focus groups and product releases. 


2) Brand positioning. Why you? Do you bring value, experience or a type of lifestyle customers want to buy into? How you want to be remembered is key to finding your place in the market — is it your ethics, sustainability or your high quality craftsmanship that will get people talking about you? 

3) Managing money. Learning to manage cash flow is essential before bringing any external money on and there are so many tools that can help including free Google Docs templates, Pulse for different currencies and Cushion for forecasting. Managing personal money and setting your salary is important for understanding your personal financial runway — and for knowing when to call it a day.

Courier’s first book full of stories and top tips is out now. It also looks great on my coffee table. 

Anisah 

\Survey

Do you think discounting your pricing is ever a good idea?

Amy Lewin
Deputy Editor

Get in touch with her at amy@sifted.eu.
She loves a bit of reader feedback.
Anisah Osman Britton
CTO at Vinokilo/Founder at 23 Code Street

Get in touch with her at anisah@sifted.eu.
She loves to hear about the latest in startupland.
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