Hi all,
I am doing a small startup and about to employ first two developers and am trying to get some feedback about shares vs share options and vesting periods to add to their offer packages.
Some background:
Web product startup (NewCo) being spun-off out of existing web development company (OldCo). Two directors of OldCo are major shareholders in NewCo and are investing code and product from OldCo. Friend has invested a five figure amount in the NewCo which values the NewCo at $400k after investment. NewCo is a private company limited by shares.
Two new developers being employed specifically to work for NewCo, some OldCo employees will do some work for NewCo but OldCo will be paid for that.
The main goal with the shares / share options is to get NewCo employee commitment to stay and grow with NewCo as far as possible through to liquidity event in 3-5 years when they will hopefully make a good payout along with the other shareholders and investors. Finding staff in our geographic region (Asia) is very difficult and we have found some great ones. The base salary packages for the 2 developers are competitive for our market and geographic region, but not vs the US. (One of the devs could probably leave and move to the US for another startup, he has in-demand skills)
We are discussing shares vs share options and have the following questions we are working through.
1) Does anyone simply give away shares to employees? We started with a simple idea of giving each developer .5% for each year of employment. But this doesn't seem to scale and we will run out of shares if have lots of devs :)
2) Share options seem to be another alterative, our understanding is we need to set am option price and an exercise schedule (vesting), but we are not sure how to do this as we are a private company with no public share price, just the valuation implied by our investor ($400k). Does anyone have any advice / experience with this kind of setup?
Thanks!
Some startups will ask early developers to take some of their pay in stock, which can be a good deal if they get preferred shares (the same as any significant investor would). It makes no sense to take pay in common stock since (unlike holders of preferred shares) you'll lose it all if the startup fails.