The best guide to startup Employee Share Option Plan (ESOP)
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- 1 article
- 2 downloadable resources
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- Certificate of Completion
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- Work with a lawyer to effectively set up an ESOP
Be able to negotiate with investors and not get screwed over
Communicate a clear plan to staff
- Understand a depth of legal terms
- Understand the role of the compensation committee
- Understand share types
- How to size your ESOP
- Understand the importance of hiring plans
- Have a computer with internet
- Basic understanding of startup and venture capital is helpful
- Be ready to learn an insane amount of awesome stuff in a short period of time
You’re here because you’re ready to build a startup that attracts and retain the best talent in the market.
You realise there is war for talent that is hard to win, and so you need to get all the key aspects of a remuneration package right. One of the most important elements is ESOPs. It’s how your staff get to participate in the riches you are building for your impending exit.
You know what the problem is with ESOPs though…
There is NO information on the internet to really teach you! WTF is going on? This is such a common requirement, why does it have to be so hard?
I’m here because I am founder friendly and want to help you create a kick ass company that treats staff well, and helps them hit peak performance, without complaints.
"Hey Alexander, thanks a lot for taking the time to share such clear walkthroughs. This is excessively useful."
- Benjamin Chevalier, King
Welcome to the definitive guide to Employee Stock Option Plans
This is the only course available on the internet. There is nothing else available, or at least anything which will come anywhere sharing as much knowledge as is in this course.
Do you know how I know that? Because I looked. I would not have made this course for you if there was one already. I don’t like to reinvent the wheel.
This course was borne out of frustration
I needed to make an ESOP for myself. I spent so much time trying to figure out the ins and outs of how they worked, I was exasperated and couldn’t understand why it was so hard?
So, what do you do as an entrepreneur; you fix stuff.
I spent the equivalent of a month researching and writing this course between all my ventures. Indeed, the script is 27,000 words long!
75% of startup is the same. 95% of ESOP is the same. Someone needed to make it easier for everyone, so I looked around and saw myself.
The course knowledge stands on the shoulders of giants
I didn’t spend my career as a HR consultant. That sounds lame AF and the stuff those guys share smells of bureaucracy and pointless PPT.
All the knowledge in this course worth knowing is grounded in years of knowledge shared from top lawyers and Silicon Valley investors. I hoovered up every ounce of wisdom I could find, distilled it, and structured it up in this course.
I have ADHD and compulsive honesty, so be assured, I tried to cut out the BS.
The bits not worth knowing are my anecdotes from my experience founding and scaling startups, be they reasonably sized (e.g. Delivery Hero, Groupon and Lazada) or small (e.g. you don’t know yet).
I’ve left no stone unturned.
I guarantee, this is THE most thorough, laser-focused and up-to-date ESOP course available ANYWHERE on the market—or your money back.
Whether you’re an entrepreneur, an innovator or the next Mark Zuckerberg just waiting to happen, here you’ll find all the key things you need to set up an ESOP and negotiate with investors and staff.
From zero to hero in a few hours.
What else makes my course different? It’ll take you from a total n00b to passable expert in just a few hours (or take it at your own pace—whatever suits you).
I hate wasting time. I’m not getting anymore of it. I resented learning about ESOPs, so I crystallised my learnings for you. Don’t spend weeks trying to get smart.
What is the value of your time? $200, $300 per hours? Times that by a week or 3 and that’s a tonne of cash you blew. Why? There are so many more productive things to do. If you need to bone up on ESOP, here you are. It’s on a plate. Eat it!
Don’t be the one to get left behind
Get started today and know how to spar with investors, lawyers, staff and your peers.
Even if you don’t need to set-up an ESOP now, take this course, learn, be an expert. I’ve been at dinners with celebrity founders and got stuck talking about ESOPs and not knowing what I wish I did. Don’t be that guy. Build your brand and network perception as an expert. This is one of the things you are expected to know about, if you want to fit in.
Don’t believe me? I offer full money back guarantee if you aren’t smarter than you were before, and can juggle 13 office standard pens or pencils for 20 seconds concurrently, 60 days of completing the course
Ready to become a boffin in staff retention?
Here’s what you get with The best guide to startup Employee Share Option Plan
You’ll get access to 16 chapters and 43 videos that dig deep into the nitty gritty of building and structuring ESOPs that attract and motivate staff.
Each chapter is supported with [dubiously] intelligent video tutorials.
Over 16 chapters you will learn:
- Motivating staff
- Basics of ESOP
- Understanding shares
- Thinking about ESOPS
- How big should the ESOP be?
- How many shares should you give to staff?
- How do you communicate ESOP to staff
- Investors and ESOPs
- What is a hiring plan?
- How investors will judge your hiring plan and how you need to be prepared to counter
- How do you set up an ESOP?
- Compensation committee
- Legal terms of issued shares to staff
- New ESOP approaches
- How to model dilution in excel
Never waste another minute learning from unavailable out-of-date books, non-existant clunky and expensive online courses and far-and-few-between yawnsome YouTube videos again!
With The best guide to startup Employee Share Option Plan everything’s ready to go, in one convenient, mapped-out course.
Hi, I'm Alexander D. Jarvis, Esq!
# Founder of 50Folds com - High-touch, global startup venture builder
# Interim COO at Taiger - Leader in AI cognitive automation for financial institutions
# Interim CFO at Goxip - Best shopping app in Asia
# Junior Partner at Jungle Ventures - The most active lead VC based in Singapore
# Helped a bit to build 3 Unicorns, so far…
# Lived and worked in 14 countries, so far…
# MD of Lazada - Fastest growing ecommerce site in SEA. Acquired by Alibaba
# Founder of Delivery Hero - Fastest growing online food delivery site in the world
# Launched Groupon across Australia - Fastest growing company in the history of the world
# Bootstrapped a bunch of innovative businesses - Failed many times. I understand the hustle
# Associate at Lazard - Mergers and acquisitions in the financial space (Banks, insurance and asset management). $8bn of M&A and $2bn IPO
# Mentor at TechStars, StartupBootCamp and a bunch of others in Portugal, Malaysia, Singapore, Thailand etc.
# And all the things that make people cringe when they write them, like doing a TedX talk
- This course is for anyone who wants to learn about Employee Share Option Plans (ESOP) and all the important details without becoming a lawyer
- It's perfect for complete beginners with limited experience to high calibre talent looking to 'hack' their learnings and not trawl the internet to piece the best learnings together
- Founders who want to know how to not get screwed by investors
- Founders who care about a high-performance culture and never looking clueless
- General founders, regardless of what country you are from. This is not designed to appeal just to American startups like most classes
- If you want to take ONE COURSE to learn everything you need to know about ESOP, take this course. There aren't any others. This is why I made it. You don't have much time since your startup has a burn rate, so use it well, not ineffective reading
Why should you take this course? Let's go through what the content of the course is.
Who is this course for? Simply put, anyone that wants to know everything they need to know about ESOPs without being a lawyer. Regardless of how experienced you are, there will be something to learn from. A great deal of knowledge was distilled from celebrity nerds.
When you join a startup, you have the expectation of getting some ownership in the company and if the company is successful and is sold, which is the most likely outcome or taken public, that you will share in the gains that result.
Employee ownership is such an important part of startup culture. It reinforces that everyone is on the team, everyone is sharing in the gains, and everyone is a shareholder, a real part of the family
The reality though is if you don't offer it, someone else will.
Dilution happens. If you raise money, hire staff, engage in M&A, you are going to get diluted. But, do you know how dilution actually works... in detail?
To understand how investment rounds and ESOPs affect your ownership, we are going to go through an Excel model I made for you.
We will create a scenario where you start with 100% ownership, then hire some staff, raise a seed, series a and series b and create two esop pools which are targeted at 10% post raise. At each stage you can see how your ownership decreases from 100% to 41%.
How your staff make money from their issued shares in the ESOP is surely something near and dear to their heart! That's a big reason they are working so hard for you, right? We're going to spend a minute to go through very simply, how they make money assuming four scenarios and an acquisition happens. This way, if staff ask you questions you are prepared to answer them for most of the main outcomes.
What are you actually trying to achieve with an ESOP? Everyone else is doing it is a pretty bad answer. Giving an ESOP to attract staff who leave 6 months later is clearly ineffectual, since you aren't retaining them. Giving a lame ESOP that ends up demotivating staff is almost worst, since they effect the rest of the office negating any benefit of the plan at all. There needs to be a real point here, otherwise why bother? So what is it?
The goal of an ESOP from the founder perspective is a little different to the goal we just discussed of staff dedication, and should be thought through another lens. The lens of maximising value creation.
Learn about the 'equity equation' from Paul Graham founder of Y-combinator.
It's not very logical to pick a number out of the hat and say my ESOP is 15%. Why is it 15%? Ideally your ESOP is enough to get you from one round to the other. The logical way to size your ESOP is quite basic when you think about it. You raise x dollars, you assign y to hiring and z to things like marketing. The amount you assign to hiring dictates how many people you can hire and therefore the size of the pool you need. Let's work through that math in two steps.
As we discussed in the last video, before you know how much to give to each staff member, you need to know the pool you can realistically grant from. You need to do some iterative calculations to understand what you can truly afford. If your prospective first 4 staff want 5% each and you only have a 20% allocation, you are out of it pretty fast. The size of your pool sets a real limit for you to consider before getting into the details of individual grant sizes. However once you have done your numbers, it is up to you to see how you can negotiate to be allowed to create a pool of that size.
Learn the 4 factors you need to know.
What ownership stake should your staff get and negotiate for? This is a really hard question to get right, and there isn't really a right answer. Whilst there isn't a perfect answer, there are wrong answers.
Let's go through the four common problems with startup job offers and why it is hard to get to 'goldilocks' numbers.
I have some bad news for you. There isn't anywhere to get really meaningful and context specific benchmarks on the grants you need to give staff, let alone at each stage and the country you are based in.
What I have done for you is collate all the heuristics and references I have been able to accumulate to help you figure out what makes sense, beyond the calculations of what you can also afford.
Once you have figured out how much you want to give to staff in total, and how much to give to individual staff, the key thing is to communicate those ESOP issuances to your staff once the plan is set up. How you do this is important and can create issues if not done properly. In this section we are going to talk about communicating ESOP grants to staff.
The reality is that there is only one number that matters to staff and them making money. It doesn't mean that it's the only way to communicate ESOP ownership though...
In the last video we discussed how to communicate ESOP grants to staff. I put forward that you should communicate the dollar based value of the grant, not the percentage they own.
The logical topic for us to get into now is of course, what information should you share if asked?
The untold truth is this; employees with decent salaries and a few options will almost never get rich at exit. The people who typically get rich with startup equity are the ones that take more risk and so own more equity; that's the founders, the investors and the earliest employees. This an be different though.
Learn to communicate how staff can get richer at exit and get them for a lower salary.
Staff, exceptional, or other are joining a startup for a reason. Either they don't want to work at a big company, or they can't get an offer from one. The later is worth being cognisant of, but not worth a discussion on. Assuming staff don't want to work for a big company, why is that?
I recommend asking staff when interviewing them to understand their motivations, then use them against them to come to the decision you know they want to take- which is joining you!
There are a multiplicity of reasons you need to understand and use to sell to get staff to join your company. Let's get into them now!
By now it should be clear that you need an ESOP, whether someone asks you to have one or not. Only, you will be asked to make one. By investors. Now beware of greeks bearing gifts, or asking for one. Not all is as it appears. Investors will ask you to make an ESOP for good reason. Smart VCs know founders/management need to be motivated, they also know you need to attract talent to make their investment, er, your startup grow to be valuable. However they don't mind asking for you to make an ESOP that is larger than you need all the way up to and just before the point they worry you won't be invested yourself.
There are 4 reasons why investors want a larger than needed ESOP pool.
The option pool is a piece of the price negotiation, but it is a very important one given the potential gains for investors. We talked about the option pool shuffle and the other three BS ways investors use the ESOP to get advantage, now let's get into taking control of the situation.