Congratulations! You landed a job at a fast-growing, covered in the media weekly (if not daily), company that has caught the attention of the world’s leading Venture Capital firms. As part of your compensation package, you were issued “equity” in the company, coming in the form of stock options. Sitting pretty, right? For the newcomer to the game, think again. While those options on paper have value, employees at startups need to be mindful of protective clauses investors inserted into the deal docs (AKA: Term Sheet), that could potentially wipe any value away from those options.
Venture Capital investors pride themselves on investing in world-class companies, burgeoning with world-class employees. Greed aside, they also pride themselves on the returns they provide the Limited Partners who ponied up the cash that enabled them to invest in the first place. Here’s a list of key terms that startup employees should monitor as their company raises capital. To see what affect they may have on their stock options in the future, monitor those terms here:
- Liquidation Preferences
- Conversion Rights
- Voting Rights
- Information Rights
- Antidilution Provisions
- Preemptive Rights
Additionally, investors who don’t have access to information rights may also want to monitor future financing terms. Did you know companies such as Uber, SpaceX, Aliphcom, Bit9, and many others received investor-friendly terms as part of their financings? With companies staying private longer, will more investors consider favorable terms in future financings?
Read more on Stock Options, Term Sheets, and Venture Capital finance in VC Experts Encyclopedia.