Apr 3 2012

How Often Do Employees Of VC-backed Startups Get Stock Options?

Question: How often do venture-backed start-up employees (let’s say non-executives) get stock option grants? Besides the initial grant when they start, how often do “re-up” grants come? Should they be expected after further funding rounds? After significant accomplishments/promotions? Never?

The short answer, at least in the US, is “most of the time.” It’s pretty standard for every employee of a VC-backed company to get at least a minor option grant as part of their compensation. Employees should expect these grants to vest over time (usually four years) and have a one year cliff (which means the person has to be employed for a year to have any of the options vest.)

Regarding the other question, it’s much more variable. In the previous post I talked some about “re-up grants”. In some cases, especially if there is a lot of dilution from a financing, there are¬†occasionally¬†broad grants across all employees post financing. However, in many cases, there aren’t, and employees should expect to take at least some of the dilution from subsequent financings, especially in up-round cases where the value of their underlying equity is increasing.

Additional grants occur on an employee by employee basis in two cases: (1) extraordinary performance (also referred to as a “spot grant” or “spot bonus”) or (2) long tenure – once an employee is fully vested (after year 4) they will often get an additional grant, although this will usually be much smaller than the original grant.