MISSING YOUR ESOPS??
In an increasingly alarming rate, I have begun to receive a panic stricken call from close friends who have been cheated of their esop/ equity/promised /founder shares in start up’s and VC funded companies.
This is what is I keep hearing:
- There was no paper work in place while I was there, and when I left
- The CFO kept changing
- I just received a letter stating that I have shares – nothing else was given to me
- I was told that the company is incorporated in Mauritius and you have shares of an Indian company
- Oops – once you left, your shares ‘expired’
- Don’t worry – when the company gets sold, you will be taken care off
All this is ‘cockroach’ s**t. I say cockroach s**t 'coz even bull s**t is usable and hence valuable.
Start up companies typically in the Internet space lure mainstream professionals to join their rocky, unheard of, highly risky and usually doomed to fail venture on 2 promises:
- Better cash compensation than the last job
- Equity!!! That’s what’s supposed to make you rich… get you the flat in Mumbai, the flight to Brazil and the upgrade from Old Monk to Blue Label
This is what goes wrong:
- Once the VC money hits the bank, the founders just get warped into execution, solving problems, managing VC expectations, firing and hiring and honestly saving their own jobs
- The promise of esop’s exists but no one really cares – the VC’s have their shares in place and the management is on a tightrope – their deliverables are revenues and traction rather than good HR practices
- The CFO doesn’t care/doesn’t get it/ is just not in the groove. His priority is burn management, filling in the VC templates and just making sure that the funds are being used productively.
So, if you wanna make sure that your sacrifice is worth the shares that came in return, first read this PPT:
[Ps - If you are browsing via a mobile device, click on the IN logo (linkedin) and directly view this deck on slideshare. The UX is much better :-)]
- Check on conditions of expiry of your rights when you leave – that should not be the trap that you fall into
- INSIST – and I retype – INSIST that you get physical shares of your due every vesting cycle (so every 6 months etc) – no shares mean no shares. Don’t be disillusioned that your shares are ‘somewhere’ – if they ain't with you, they ain't with no one.
- Try and understand the capital table ‘cap table’ of the company without being too nosy. Just understand if your 200 shares comprise 0.2% of the company or 0.02% or 0.0000002% ….. get the drift?
- If there is a procrastination from the management, CFO, etc on your esops and where your shares are, write to the VC member on board. Trust me, they don’t want their investee companies to be frauds. They just need to be alerted.
- On exit, make sure that your paperwork is in order and that your quitting/getting fired has no impact on your existing shares
- When in doubt, simple ask a lawyer!!! It's so amazing – when we get a flu or a high fever, we run to a doc – why can't you simply ask a lawyer for help for your soon to be made fortunes!
In a successful exit, shares change hands very rapidly and the transaction closes without delay. You better have your shares in place for that golden moment.