ESOP for Founders
What is Equity in Business – A Complete Guide
According to a survey by Intuit, 75% of small business owners said they relied on their own personal savings to start their businesses. The initial funding invested in your company by you or others lay the ground for your business equity. Financing a business is no cakewalk. We’ve been there, done that. Bootstrapping is great, however, you’ll need extra funds if you’re planning to build something tangible. With a lack of capital, especially for a business that requires product development, it’s a challenge to scale. This is why many businesses offer equity to investors and employees in return for their […]
What Is an Advisor Agreement? Here’s a Template You Can Use
Being a business owner or a leader in the corporate world entails donning many hats. Multitasking, managing and charting new courses, to name a few. However, there certainly comes a time when the solution to a particular problem eludes you. And When you are bested by a subject that does not fall within your area of expertise, your desire to seek external help arises. In the corporate world, this is where advisors come into the picture. Most frequently, entrepreneurs growing their startups require advisors to come on board so that they have access to the right advice at the right […]
New FAQ – for Founders
New to ESOP, know all about it here. Don’t forget to see the detailed example and the sample documents at the end of this article. Note that this article is useful for both founders and employees alike to know the basics Are you a founder? Want to know all about how to rollout ESOP formally in tour Startup, use this step-by-step guide. Should I create a trust to rollout ESOP in my Company? – see top questions below What are the top questions you need to answer as a Founder before creating your ESOP scheme document? – done Are you […]
Advisor Equity: What Is It and Who Gets Them?
Amid a flurry of capital infusion into Indian start-ups, a wave of fast-growing companies, including Simplilearn, Arya, Zoomcar, Bizongo, and Wakefit, are bringing in seasoned advisors from India and abroad to assist scale up to the next level of growth. According to Reet Bambhani of EMA Partners, demand for such advisors in the startup ecosystem has increased three to four times since pre-Covid levels. Most startups have plenty of cash in hand, and they are looking for experienced hands. As a result, almost every startup company is now attempting to enlist the help of advisors, whether as non-fiduciary advisory board […]
Stock Appreciation Rights (SAR) Dictionary
We have called this a dictionary but not organized it alphabetically intentionally! We’ve tried to capture the flow of events that take place and we believe this will help you understand Stock Appreciation Rights (SAR) better! SAR: The word SAR stands for Stock Appreciation Rights. A SAR is a form of bonus compensation given to employees equal to the ‘appreciation’ or increase in the price of the company stock over an established time period. SARs are beneficial to the employee when the company stock price rises. In SARs, employees do not have to pay the exercise price but receive the […]
Difference between ESOPs & Stock Appreciation Rights (SARs)
Stock Appreciation Rights or SARs are picking up momentum in India. You would have recently read about the serial entrepreneur Jiten Gupta’s startup Jupiter Money adopting Stock Appreciation Rights for their entire team (this is being managed end to end by trica equity). So, let us spend some time understanding the difference between Stock Appreciation Rights and ESOPs. Let’s first explain to you what ESOPs are. ESOPs stands for Employee Stock Options, and under an ESOP Plan, employees are given an “option or right” to purchase the company’s shares. With ESOPs, an employee has to actually “pay” the exercise price […]
Making the closed open!
India’s private market is “closed”. You’re probably thinking, we have seen over 20 unicorns being created this year, “retail-like” participation in startup investing is happening at a pace and scale we have not witnessed before and our largest technology companies are now listing (Zomato and Freshworks amongst others) – what is Nimesh saying? India’s private markets are far from being closed… Well, as an insider (for what it’s worth) I see that we are just at the start, or like I’ve said before, we are only at the lunch session of Day 2 of a cricket test match. Where we […]
What Is the Right Time to Exercise Stock Options?
For many employees in the US, especially those at startups, stock options are a part of their compensation packages. While the right to buy stock in a company at a set price is an attractive form of compensation, stock options have more complex tax implications than straight cash. Understanding NSOs and ISOs The two basic stock options are Non-qualified Stock Options (NSOs) and Incentive Stock Options (ISOs). Both NSOs and ISOs may be subject to a vesting schedule during which employees can buy a certain number of shares each year over a period of several years. Regardless of the vesting […]
How Are Stock Options Taxed in the USA?
For many employees in the US, especially those at startups, stock options are a part of their compensation packages. While the right to buy stock in a company at a set price is an attractive form of compensation, stock options have more complex tax implications than straight cash. Stock Options: NSOs and ISOs The two basic types of stock options are Non-qualified Stock Options (NSOs) and Incentive Stock Options (ISOs) and they both have different tax provisions. Both NSOs and ISOs are subject to a vesting schedule during which employees can buy a certain number of shares each year over […]
ESOPs: What’s the ESOP DNA of your startup? #LetsTalkEquity
In this #LetsTalkEquity interview with TN Hari, Head HR of BigBasket – India’s most significant online food and grocery store, we deep dive into how you can think about ESOPs at your startup. Hari has been an HR practitioner and advisor to multiple startups and scale-ups and helped shape four successful exits in different industries, including an IPO on NASDAQ. Presently, Hari is the Chief People Officer at Big Basket, an advisor to VCs like Arkam Ventures and The Fundamentum Partnership. In this free-wheeling chat with Ganesh Nayak of trica equity, Hari talks about: How ESOP policies have evolved over […]
ESOP for Employees
Restricted Stock Unit (RSU) Tax Strategies to Save on Tax Bill in 2022
Companies have added several components to their employee compensation packages and schemes. One of the many popular ways of offering employees benefits is in the form of restricted stock units. Restricted Stock Units or RSUs are a type of stock compensation where the shares are taxed as capital gains once vested in the employees. The RSU stocks can be of great benefit to employees and can sometimes account for 50% of their annual package when used the right way. The RSU tax plays a major role in maximizing profits once the RSU stocks are vested. Having knowledge of the RSU […]
Equity Compensation Benefits for Startups to Attract New Talent
In a competitive job market, hiring quality talent and retaining them is key to breaking the clutter and staying alive. This can give brands an upper hand to curate business processes and shape organizations to rise to the top. But, one of the biggest challenges startups face is the inability to afford the best. A candidate that fits the job profile perfectly may be too expensive for a startup or an SMB, which means they must either let go of the “perfect candidate” or pay them what’s due despite a heavy strain on their pockets. Many companies solve this problem […]
How Does Equity Compensation Combat Rising Inflation and Salary Increase Demands
The precarious state of the labor market has been rendered all the more fragile by the lasting effects of the pandemic. Fueling the downward trajectory, the Russia-Ukraine war has exacerbated the economic conditions worldwide. With rising inflation, higher volatility, lack of liquidity, supply-chain disruptions, a risk of stagflation and an imminent recession seem undeniable. With the rise in inflation, salary hikes are being expected by employees everywhere. The CPI (Consumer Price Index) has been on the rise and employers are in a catch. With reduced liquidity and rising demands, retaining the talent without creating a hole in the budget seems […]
All You Need to Know About ESOP Vesting Period
The start-up ecosystem in India is the third-largest in the world and draws a wide range of global investors. In a webinar on ESOPs, the founders of trica equity and Inventus Law talk about how incorporation and initial generation of funds through equity are parts of the company’s first steps. In conjunction with this, employee stock option plans (ESOPs) are tools to leverage equity, tap into financial and human capital, and retain talent to improve its performance and profitability. Vesting schedules are set up by companies to determine when talented employees become fully “vested,” or acquire full ownership of certain […]
What are Stock Appreciation Rights (SARs)?
SARs are a form of bonus compensation given to employees equal to the ‘appreciation’ or increase in the price of the company stock over an established time period. This form of compensation is beneficial to the employee when the company stock price rises. Through SARs, employees can actually exercise and realize liquidity from a particular stock at any point between the time it vests and until the time it expires. How are SARs rewarded? In most cases, the vesting schedule of SARs is tied to performance goals. After an employee meets pre-defined performance targets, an exercise period is allocated to […]
What Does Tax Deferral on ESOPs Mean for a Startup?
Employee stock ownership plans (ESOPs) are attractive benefits part of the employee compensation package. As companies understand the pain points of retaining talented staff, offering meaningful employee stock options makes more sense. And what’s more, your employees can now enjoy the benefits of ESOPs with the current tax deferral strategy, which allows them to pay taxes later. This article provides an overview of tax deferral on ESOPs, weighing the cost and benefits and what this means for your employees. Allocation of ESOPs and their benefits in India The implementation of ESOPs is a complex undertaking. Most companies and start-ups are […]
Making the closed open!
India’s private market is “closed”. You’re probably thinking, we have seen over 20 unicorns being created this year, “retail-like” participation in startup investing is happening at a pace and scale we have not witnessed before and our largest technology companies are now listing (Zomato and Freshworks amongst others) – what is Nimesh saying? India’s private markets are far from being closed… Well, as an insider (for what it’s worth) I see that we are just at the start, or like I’ve said before, we are only at the lunch session of Day 2 of a cricket test match. Where we […]
Is Your ESOP Plan Effective in Hiring & Retaining Employees?
The most pivotal asset a company has is its workforce. Therefore, it is not only vital to hire outstanding talent, but it is also critical to retain them. It’s only then that a business grows. The reason is simple. A high attrition rate is expensive. The repetitive cycle of finding, onboarding, and training talent leads to a bleeding cash outflow. Besides, the business sorely lacks engaged, vested employees. Cash incentives are one route to attracting top talent, as attested by the economic principle of efficiency wages. Paying the workforce wages higher than the market equilibrium lures better candidates. It is […]
4 Core Factors That Question the Transferability of ESOPs
Employee Stock Option Plans or ESOPs were first introduced in 1947 in the US to encourage employee ownership, based on the theory that such companies perform better. The positive effect that ESOPs had on performance was studied and documented by Harvard Business Review in 1987. It showed that 73% of companies that started an ESOP showed improved performance, and the increase in sales growth attributed to ESOP commencement was 3.51%. Therefore, the theory on which ESOPs were first introduced has proven to be factually correct. However, if ESOPs were transferable, will these benefits still stand? Can ESOPs be transferred? Legally […]
What Is the Right Time to Exercise Stock Options?
For many employees in the US, especially those at startups, stock options are a part of their compensation packages. While the right to buy stock in a company at a set price is an attractive form of compensation, stock options have more complex tax implications than straight cash. Understanding NSOs and ISOs The two basic stock options are Non-qualified Stock Options (NSOs) and Incentive Stock Options (ISOs). Both NSOs and ISOs may be subject to a vesting schedule during which employees can buy a certain number of shares each year over a period of several years. Regardless of the vesting […]
Cap Table
Everything you should know about Waterfall Analysis in a Cap Table
In today’s competitive business environment, maximizing profits requires careful consideration when determining product pricing. There is no longer a simple way for investors to determine their ROI by looking at their share of ownership. Nowadays, it’s incredibly simple for investors to miscalculate their returns due to the increasing complexity of term sheets. To help you better understand your return in various exit situations and values, we have developed a tried-and-true, fully dynamic, integrated, and comprehensive model called “waterfall analysis.” This article will explain everything you need to know about waterfall analysis in a cap table. What Is Waterfall Analysis? When […]
Why should Startups use a Cap Table Software – Use this Free Cap Table Template
Maintaining a functioning and up-to-date cap table is an essential part of its operations for a startup that plans for growth. In the initial stages of growth, it is relatively easy to track the equity ownership percentage in the company. However, as the startup grows, the number of stakeholders grows from five to more, and their shares aren’t easy to track. Therefore, as a startup grows, so does the complexity of its cap table. If you’re starting building a cap table, this blog will show you the right path to maintain one, with a free template for your reference. Let’s […]
Seven ways to Cap table management in 2022 with examples & checklist
Managing a cap table is like making a job resume; you create one at the beginning of your career and keep updating it as you evolve. As your business commences, you create a cap table with equity details. With time, as your business grows and the equity structure changes, you update the cap table. Cap table is not a one-and-done job. You need to update and manage it regularly. This ensures data accuracy that leads to informed decisions. Imagine your business gets into legal matters due to incorrect alterations and an outdated cap table. Also, you could lose business investment […]
Your Ultimate Guide of building a Cap Table in 2022
If your startup were a web series, the cap table would be the credits rolling at the end of each episode. The cap table provides all the information for startup founders to understand who owns the company at a certain stage. Whether you’re doing due diligence for a fundraising or incorporating a new company, cap tables help you to understand who has the company’s control. This article explores what cap tables mean for startup founders and how to manage them. What is a cap table? A cap table or capitalization table is a chart detailing all of a company’s securities. […]
How to Read a Cap Table? Usages, Key Terms, and More
A cap table is relatively simple to comprehend. It’s a table typically made on a spreadsheet during the inception of startups. It lists all the company’s shareholders and shows who owns what, how much they own, and how much value is allocated to the shares they own. Cap tables are crucial for several reasons; however, one of the most important factors is that they help investors understand what they’re buying while also assisting all shareholders in keeping track of their stake as the firm raises more capital. This article will explain a cap table, its different elements, and how to […]
Why and When Should a Company Use a Cap Table Management Software?
Very simply, a capitalization table, also known as a “cap table,” shows a stakeholders wise or funding round wise breakdown of a startup’s ownership. A cap table makes it simple to see who owns what in a firm and helps investors understand a startup’s capital structure. Managing the cap table is an important activity for founders right from the time they incorporatebut it tends to be overlooked. Spreadsheets can become unwieldy when a startup has to track its ownership interests alongside investor stakes and employee stock options. However, dedicated cap table software automates much of the laborious work, making it […]
Cap Table Management Checklist by Pros
Using a cap table to manage and develop your company’s shares is an essential aspect of business evolution. However, being a newcomer to the startup world can be intimidating, making it challenging to construct a cap table and make decisions about it. A cap table checklist will help new business owners understand and manage their resources to develop their business. Why Is A Cap Table Important? A cap table is a technique used by start-ups and new firms to demonstrate ownership. This comprises common shares, preference shares, options, warrants, convertible notes, and various other securities. It would have ramifications for […]
All You Need to Know About Start-up Funding Rounds
If you are an entrepreneur looking to grow and scale, you might need to look into financing your start-up. Once valued for their rarity, unicorns have grown more commonplace as investors are making more deals, funding of start-ups are more readily available, and the exit market has improved. Most successful start-ups have undertaken efforts to raise capital through several rounds of external funding. As a result, the global venture capital funding in the first half of 2021 reached record highs with over $288 billion in global investment, as per Crunchbase. In this article, we discuss more about start-up funding rounds. […]
Equity Term Sheet: What Is It and How to Prepare One?
If you are a budding entrepreneur, you will know that finding investors who believe in your business idea, have the financial ability, and willingness to invest in your business is an arduous task. However, once you find one, you need to safeguard your interest and commit to those who are ready to invest their hard-earned money into your business. An Equity Term Sheet can do this. So what is it? And how to prepare one? Keep reading to find out. Understanding Equity Term Sheets This section aims to explain the meaning, components, and features of an equity term sheet. What […]
All You Need to Know About Liquidation Preference
If you are an entrepreneur or in the top management of a growing start-up, your primary focus is probably on ensuring smooth operations, creating business opportunities, recruiting the right talent, and streamlining processes in your organization. Thinking about which investors get paid off first if your venture gets sold to a larger company is not an everyday affair. However, it is important to know about this from the get-go so that there are no surprises if the situation arises. Liquidation preference, as the name suggests, gives preference to certain investors when complete or partial liquidation occurs. Liquidation preference cannot be […]