Navigating Stock Option Policies

A universal piece of advice for any employees navigating a tender offer... 𝗣𝗹𝗲𝗮𝘀𝗲 𝗿𝗲𝗮𝗱 𝘁𝗵𝗲 "𝗢𝗳𝗳𝗲𝗿 𝘁𝗼 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲" 𝗱𝗼𝗰𝘂𝗺𝗲𝗻𝘁. 🤔 If your company rolls out a tender offer or stock buyback, you'll likely have access to a host of documents. 🔽 FAQs, Offer to Purchase, Risk Factors, Cap Table Overview, Company Financial Statements, and the list goes on. Many employees initial reaction is "𝙉𝙤𝙣𝙚 𝙤𝙛 𝙩𝙝𝙞𝙨 𝙢𝙖𝙠𝙚𝙨 𝙨𝙚𝙣𝙨𝙚 𝙩𝙤 𝙢𝙚. 𝘿𝙤 𝙄 𝙧𝙚𝙖𝙡𝙡𝙮 𝙣𝙚𝙚𝙙 𝙩𝙤 𝙧𝙚𝙖𝙙 𝙩𝙝𝙚𝙨𝙚 𝙡𝙚𝙣𝙜𝙩𝙝𝙮 𝙡𝙚𝙜𝙖𝙡 𝙙𝙤𝙘𝙪𝙢𝙚𝙣𝙩𝙨?" The short answer is "Yes". (Or find a professional who understands this language and can help explain what specific terms mean as it relates to your situation). The 𝗢𝗳𝗳𝗲𝗿 𝘁𝗼 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲 document includes key definitions such as: ▪️ How much you're eligible to sell ▪️ What are the tax implications for selling various types of equity ▪️ What is the purchase offer price ▪️ What types of equity are eligible to be sold While it's often a 50+ page document, there are MANY key pieces of information that ultimately impact what you will actually receive in net proceeds. I've helped employees at over 15 different companies navigate tender offers, buybacks, & secondary sales. I wish I could say there was a standard process for these events, but it's very company-specific. Key terms to be on the lookout for: ▪️ Does a selling unexercised stock options in a tender offer 𝙢𝙤𝙙𝙞𝙛𝙮 𝙤𝙧 𝙖𝙢𝙚𝙣𝙙 your entire option grant or just the shares being sold? ▪️ Is the premium over the Fair Market Value treated as compensatory? Or if you have held shares for over 1 year, is the Sale Price - Exercise Price considered long-term capital gains? ▪️ What happens if the tender offer is oversubscribed? Do current employees receive priority over former employees or are all shareholders subject to receive a prorated amount of shares? I recently spoke with someone who interpreted that she was only eligible to sell 50% of her vested equity. Thankfully Carta and Nasdaq Private Market allow employees to invite their financial & tax advisor to the platform to help review these documents on behalf of their clients. After reviewing the Offer to Purchase document, I discovered that all of her options met the criteria of 𝗘𝗹𝗶𝗴𝗶𝗯𝗹𝗲 𝗘𝘅𝗽𝗶𝗿𝗶𝗻𝗴 𝗢𝗽𝘁𝗶𝗼𝗻𝘀, and therefore she is able to sell all 100% of her vested shares. This information was buried in the fine print on pg. 11 under the "Definitions" section. The ability to sell an extra 50% of her vested shares is going to allow her and her husband to put a 20% down-payment of their first home. 😊 As they say, "the devil is in the details". Oftentimes, these details can make a meaningful difference in one's financial life.

Client case study: meet Cal and Haley Life rarely stands still, and for Cal and Haley, the past year has been full of transitions. ✅ Cal (39) left a decade-long career at a big tech company for a startup. ✅ Haley (38) put her career on pause to go back to school to become a nurse. ✅ Their two young kids (5 & 3) just started preschool and kindergarten. Big life shifts = big financial changes. 🔹 Cal’s income is now more variable. 🔹 Haley’s career break means a temporary income dip. 🔹 A lot of their net worth was still tied up in Cal’s old company stock. 🔹 His new role came with a stock option package—opportunity, but also potential tax surprises. Here’s how we helped them tackle it: 💡 Dialing In Cash Flow – Built an automated system for saving, spending, and investing. Created a buffer fund to smooth out variable income. 💡 Diversifying Old Company Stock – Implemented a structured selling plan to reduce concentration risk while managing taxes. 💡 Proactive Stock Option Strategy – Developed a plan to exercise options up to the AMT crossover point to minimize tax impact. Beyond the numbers, this gave them something even more valuable—confidence. Cal is thriving in his new role. Haley is fully embracing her journey back to school. And their financial plan is giving them flexibility to navigate what’s next. --- Want to dive deeper? I wrote about this case study more in depth here: https://lnkd.in/gQZqdrPz Feeling like Cal and Haley? If you’re facing major financial changes and need a plan, shoot me a DM.

Save this if you work at a startup or are a founder (ESOPs 101) Many employees join startups, excited about ESOPs, thinking they own a piece of the company. But when it’s time to cash out, they realize they don’t fully understand how ESOPs work. Some even lose them without knowing why.  ESOPs (Employee Stock Option Plans) let startups compensate employees with stock options instead of high salaries. They help attract talent, retain employees long-term, and align success with company growth.  But not all ESOP policies are equal. Some truly reward employees, while others make it nearly impossible to benefit.  How ESOPs Work?  Employees are granted stock options, but they don’t get them all at once.  Vesting is the process of earning ESOPs over time. Companies won’t give all stock options on day one; they release them gradually.  Example: If you receive 1000 ESOPs with a 4-year vesting period:   ↳ 25% (250 ESOPs) after the first year   ↳ The remaining 750 are distributed monthly or quarterly over 3 years  The vesting schedule determines how ESOPs are released. Some companies give more upfront, while others spread them evenly. A fair policy ensures balanced distribution.  Vesting should ideally start from the joining date. Some companies delay it by years, reducing employee benefits.  Once ESOPs are vested, employees must purchase them by paying the exercise price (strike price).  Example: If a stock is worth ₹1000 and the exercise price is ₹990, your actual gain is only ₹10 per share. If the price falls below ₹990, ESOPs become worthless. A good policy sets this price at a nominal amount.  If you leave, your vested ESOPs should remain yours. Some companies require employees to exercise ESOPs within months, or they expire (forcing them to pay taxes on unrealized gains) A fair policy lets employees retain and exercise ESOPs anytime, even years after leaving.  During a startup exit (acquisition or IPO), ESOPs should fully vest immediately (accelerated vesting). Without this, employees lose unvested stock if the company exits before their vesting period is complete.  The holding period determines how long you must keep shares before selling. Some companies impose restrictions, while others allow immediate liquidity.  Many startups conduct ESOP buybacks, repurchasing shares at a fair price so employees can convert stock into cash. If a company doesn’t offer buybacks and is far from an IPO, employees may wait indefinitely to benefit from ESOPs.  For transparency, employees should receive written ESOP agreements within 1-2 months of joining. If not, follow up aggressively. Verbal agreements aren’t enough.  The best ESOP policies genuinely reward employees, not just investors. I’ve attached an excellent summary by Pravin Jadhav (Dhan) on ESOPs.  PS: Do let me know if you need an Excel file for the same. #esops #startups #employees #founders

Stock options can seem very mysterious🔮 So, make the policies and systems to administer them straightforward. First of all, use Carta, Ledgy, or a competitor and setup your attorneys as the administrators. This is a place it is worth spending some money upfront. Why? Keeping track of the cap table in a spreadsheet is a hot mess. Things like Vesting Commencement Dates have very specific meanings and someone unfamiliar with the terms can easily mess up the inputs. When issues are discovered in audits years later, they often still have to be cleaned up requiring confusing disclosures you’d rather not have to issue. Mailing out stock certificates to former employees in batches months after they leave is annoying — for them and for you. Start with a single New Hire grant policy. A 1-year cliff and 4-year vest is still pretty standard. If you have a leveling system (can literally be levels 1-7; Molly Graham has a good article on super basic startup leveling), you can assign a specific number of basis points* per level. *Basis points are a financial term to represent 1/100th of a percentage point. This helps you not have super small percentages to work with. Now, create a table with two columns — one for technical roles and one for non-technical roles. Allocate more equity per level to technical roles. And, voila, you have a table you can use to assign new hire equity allocations. Use this table until predetermined re-evaluation points (e.g., revenue or financing milestones) at which point equity per level will go down. I always put the next re-evaluation trigger in the upper left hand corner of spreadsheet so people can see when it’s coming up and start planning for it. You can also combine this table with headcount growth projections to determine when you need to bring forward Board requests around re-sizing the employee stock option pool (ESOP) or to proactively avoid needing to do so. You should always have an eye on the size of your pool and when you’ll run out of options! Remember to factor in cancellations and forfeitures — or when employees leave before options are vested and/or don’t purchase vested options and they go back into the pool. It is super embarrassing to run out of options without realizing it. Don’t be that person.🙈 Once you have employees who’ve been with you for 2+ years, consider adding on Refresh and Promotion / Role Change Grant Policies. These policies help keep individuals’ equity stakes commensurate with their contributions and commitment to the company.

I spoke with a founder last week who was juggling nonstop product deadlines when her biggest crisis blindsided her... Key employees felt shortchanged on the ESOPs she’d been promising verbally since Day 1. And she was closing in on 2 years. No signed ESOP grants. No way for employees to track their options. No transparency. She couldn’t afford to lose her top talent—especially with a make-or-break product launch on the horizon. And without formal documentation, the team was left guessing what “ownership” really meant, and that guesswork quickly morphed into frustration. After hearing her story, I gave her three specific suggestions to help realign her ESOP approach and rebuild trust. Here’s how we tackled it: 1) Lock Down an Official Policy: First up, we drafted a straightforward ESOP document—board resolutions, compliance filings, clear vesting rules, and an actual legal foundation. Even a basic policy is infinitely better than a vague verbal promise. 2) Establish Fair, Transparent Vesting: We took every informal “handshake” deal she’d made and mapped it onto a simple vesting schedule. Employees immediately felt more confident knowing exactly when and how they’d gain real ownership. 3) Keep Everyone in the Loop: Instead of waiting for another HR flare-up, she set up a detailed dashboard covering vesting progress, new grants, and the company’s broader growth trajectory, so no one’s left in the dark. And the whole thing from generating grant letters and collecting e-signatures to tracking vesting schedules and ownership was all done through Tabulate. ESOPs shouldn’t be confusing or a source of uncertainty. Tabulate makes it easy to issue, track, and manage equity—so your team stays engaged and informed. Check the link in the comments for more information 👇 #esops #stockoptionplan #stockoptions #startups #indianstartups Indranil Tiwary Ranjit Sundaram Chetan Pasari incentiv