Guide to Employee Equity by Balderton Capital

Equity is at the heart of the technology ecosystem. The shared belief amongst a company’s founders, investors and employees is to leverage technology to create value for all stakeholders. But how does it work?
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Grant Employee Balderton Capital vest company option
About Techcelerate Ventures

Tech Investment and Growth Advisory for Series A in the UK, operating in £150k to £5m investment market, working with #SaaS #FinTech #HealthTech #MarketPlaces and #PropTech companies.
Grant Employee Balderton Capital vest company option
<p>1
 Balderton Capital 2017. All rights reserved
Balderton Essentials
Guide to Employee Equity
 Balderton Capital 2017. All rights reserved
What Do We Address Here?
Why give equity to employees?
What is employee equity? 
How much equity is needed for the ESOP pool and how does it evolve?
How much equity should I give an employee?
How do I set a strike price for employee options?
How do I help employees understand and value their equity?
What are the details of vesting, exercise, and refresh?
What are variations on stock options?
How do I present this to my board?
Where can I find more information?
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 Why Give Equity to Employees?
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Why is Employee Equity Important?
Equity is important for 
  Compensation, especially in early days when cash is scarce
  Recruiting rockstars (and everyone else!)
  Retention and continued enthusiasm from the team
  Incentivising future successes
  Rewarding past performance 
  Culture and engendering a sense of collectiveness
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 What is Employee Equity?
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Common Types of Equity for Employees
Options (ESOs) 
  Most commonly used in:  
 
 Offer the holder the right (but not the obligation) to buy 
company shares at a predetermined price over a specific 
timeframe
 
Virtual shares (VSPs) 
 
 Most commonly used in:  
 
 Also known as 'Phantom Shares' or 'Shadow Stock'
  Provide a contractual right to the employee that mimics an ESO 
without the real option
 
 Like ESOs, granted at a predetermined price, and upon exit 
(when the shareholder sells the real shares), the employee is 
treated as if he or she had sold the real shares
 
 Unlike ESOs, do not provide employees with voting rights or 
the other rights of traditional shareholders upon exercise 
 
Warrants 
  Used in:  
  Like ESOs, offer the holder the right to buy company shares at 
a predetermined price over a specific timeframe in the future. 
In specific jurisdictions, warrants have more favourable tax 
treatment than ESOs
 
 'BSPCE' warrants are considered most tax-efficient type  
in France
 
 In some jurisdictions, such as Sweden, warrants and other 
types of equity are much more complex (e.g. employees may 
have to pay a 'premium' upfront) and tax advantages seen in 
other jurisdictions may not apply
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}Key Events in the Life of an Option
Vesting Period
Time over which options become  
exercisable by employee
Cliff 
Employee earns right 
to exercise first portion 
of granted options
Grant 
Employee 
receives promise 
of future option
Exercise
Employee exercises option to purchase shares 
at the strike price. May occur any time after 
vesting. If an employee leaves the company be-
fore an exit, he or she is often required to exer-
cise any vested options within a specified win-
dow (i.e. 90 days).
This may be very short, as when an employee 
works for the company at the time of an exit  
and exercises and sells on the same day.
Alternatively, this may also be long due to tax 
reasons, as when an employee exercises at a 
low strike price and intends to hold the options 
so that the gain from sale is taxed as long-term 
capital gains.
}Sale
Fully Vested 
Employee has earned right 
to exercise all options
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Other Key Terms in Equity
   Employee Stock Option Plan: A programme that sets out the terms of employee equity
   Employee option pool: The percentage of a company's total shares outstanding set 
aside to be offered to employees as a tool for recruitment and / or retention
     Strike price: Also known as an exercise price. The price (determined at the time of grant) 
at which an employee can purchase the shares of the grant
   Exercise window: The timeframe over which an employee may purchase options. This 
window typically begins on the date of departure from a company and ends after a pre-
determined number of days
   Refresh: A grant given to an employee after his or her initial hire 
   Types: For additional equity types / structures, especially for other countries or 
jurisdictions, see Section VIII
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 How Much Equity is Needed for the 
ESOP Pool and How Does it Evolve?
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How Big Should an ESOP Pool Be?
   Note: Founder shares are separate from the ESOP pool and should not be included here
  The size of the pool should be reviewed annually in conjunction with hiring plansfinancing rounds also 
offer good opportunities for this
  Typically, after any financing round through Series B, a company should aim to have an unallocated 
pool of ~7.5%. After Series C, the unallocated pool should represent roughly 5%
It is crucial to remember that while employee equity pools can be expanded over the company's 
financing journey, the pool should not expand infinitely. For example, once a company becomes 
public, other incentive programmes (like LTIPs) may be more appropriate.
How much am I setting aside for my employees in aggregate? 
This is an important decision made in conjunction with your investors and with your board.
We recommend growing your ESOP pool size to approximately match the below:
Seed  Series A
Series B
Series C
Thereafter
Size of employee pool as % 
of total equity (allocated + 
unallocated)
7.5  10%
9 12%
12  15%
15%+
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How does the pool evolve?
Illustrative Example* of ESOP Evolution
*Note: companies should be evaluated on a case-by-case basis. Example is illustrative.
Pre-ESOP
Seed
Series A
Series B
Series C
Series D
IPO
Company 
Valuation
$3M
$25M
$75M
$200M
$450M
$750M
Total Shares in 
Company
10M
12.5M
15M
20M
25M
30M
40M
ESOP  Total
1.9%
7.5%
10.0%
11.0%
13.5%
15.0%
18.0%
Allocated
1.9%
3.1%
5.9%
7.1%
9.0%
11.7%
15.0%
Unallocated
4.4%
4.1%
3.9%
4.5%
2.9%
3.0%
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How does the pool evolve?
Illustrative Example ESOP Pool Growth & Vesting 
Cumulative. *Assumes all allocated shares vest
5%
0%
0
1
2
3
4
5
6
7
8
9
10
9%
14%
18%
% of total shares in ESOP
Seed
A
B
C
D
YEAR
% of total shares allocated
% of total shares  vested*
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 How Much Equity Should I  
Give an Employee?
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How Do Grants Change Over Time?
It's okay for grants to start off as more art than science, but it will 
always require a balance between the two
Grants to early  
employees
Early on, equity helps to attract and incentivize 
team members who are vital to the initial  
success of the company (engineering, product 
development, etc.)
These grants vary in size, according to the 
candidate and resources.
By Series B, most grants should be systematic  
and fairly transparent, within an employee stock 
option plan.
Recruiting the C-level management team will still 
likely require tailored grants.
Key management hires
ESOP
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Should All Employees Get Equity?
   Giving equity to all employees can be a powerful cultural tool. While this has many 
advantages, it's important to be thoughtful in granting options
   Giving options to all employees helps ensure everyone feels a part of the vision and a 
sense of ownership within the companywhich can be an incredibly powerful motivator
   Even junior employees? Yes, grants can be relatively small for junior employees
   Equity is not a limitless resource. However you allocate it, ensure you have enough to 
compensate rockstars and leaders
   Founders may find that employees, especially in Europe, may not value equity as highly 
as a cash equivalent. In such cases, small equity grants or cash awards can be suitable
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Planning the Size of Employee Grants
 Plan with a view on both the top-down and bottom-up!
What is the value of this person to us and what is a 
 competitive offer?
How much equity is available in the employee option pool?
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What are the Steps of Planning Grants? 
To plan equity for near-term hires:
1 Create a hiring plan for the next ~18 months
 
2 Estimate how much equity you anticipate needing for each new hire
 a   Start planning with senior hires, as their grants will likely be the largest
 b   Include a buffer for negotiation! 
3 Before Series B: Determine appropriate grant size based on:
 a   Amount of employee option pool
 b   Role / experience of the individual, and
 
c   Market / competitor offers
or
1  Series B+: Confirm grant size and total equity needed based on ESOP scheme
 
a   Include a buffer for exceptions 
2 Identify existing employees to be awarded refresh or reward grants
3 Consider how these grants inform future expectations
4 Update ESOP scheme as appropriate
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How do ESOP Grant Sizes Differ  
by Stage? 
 
    # of Employees
< 15
15  50
50 +
  Typical cash compensation
Minimal
Below market
Close to market
  Corresponding Equity
Up to 1% per employee 
(typical in U.S. startups)
By seniority
Based on ESOP scheme 
(typically multiple of salary)
  Bottom Line
Be generous!
Move away from 
 individual grants
Stick to the scheme!
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What are Typical Grants for  
Early Employees?
Grant size for early (first 1-10) employees is determined by role and  
experience, but should reflect the early stage at which they joined
In the U.S., the earliest few hires might expect up to 1% each. Expectations  
are somewhat lower in Europe, but this is adjusting upward
Incentivizing your first 10 employees via equity is more art than science.  
It's helpful at this stage to step back and think about how much you want 
allocated by your seed round, and to set compensation expectations for your  
early hires based on realistic and ambitious upside potential
You can find a more detailed tool in planning for an individual grants here. 
You can find further reading about grant sizes and benchmarks here.
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By Series B and beyond, a structured ESOP scheme should determine grant size by 
applying a multiple to the employee's base salary
 
 Levels can be used to coordinate grant sizes as a proportion of base salary across roles 
and functions
  As company valuation grows, upside falls  and you may have to offer multiples at the 
higher end of the ranges in the table below
 
 In places where salaries are lower, multiples may also be higher
You can find a more detailed tool in planning for an  
individual grants here.
You can find further reading about grant sizes and 
benchmarks here.
What are Typical Grants at  
Different Levels?
Role
Level
Salary Mult.
C-Level
1
See next slide
VP
2
0.7x  2.0x
Director
3
0.5x  1.0x
Manager
4
0.3x  0.7x
Key Functions*
5
0.2x  0.5x
All Others
  5+
0.0x  0.2x
For example, If a Manager earns a salary of 80,000, his 
grant could be 0.5 x 80,000 = 40,000. The number of 
shares in the grant is determined by the delta between the 
most recent valuation and strike price of the options 
*Key Functions might include strong individual contributors (tech or otherwise) that will have 
to be incentivized proportional to the value they bring the business
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What are Typical Grants for C-Level?
European Executive Equity Stakes By role
Management team hires will likely expect to negotiate larger grants, regardless of stage
 
 These grants will remain highly individualized
 
 It is rarely necessary to give even critical senior hires more than 1-2% (with the exception of  
CEO hires). Think carefully, and discuss with your board, before you make an initial grant of  
more than 1% 
 
 At later stages, you should also examine the size of this grant relative to the individual's salary
Source: 2015 VC ECS survey, reflects non-founders only
0.0%
2.5%
CMO
CTO
COO
CFO
Other C-Level
25th Percentile UK & EU
75th Percentile UK & EU
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This hypothetical case study is meant to help illustrate the planning process that a 
company may go through for early employee grants
 
 'Pied Piper' was founded three years ago by two co-founders
 
 'Pied Piper' first hired a talented and experienced engineer, and offered him 1% of the 
company as part of his compensation. He was essential in the company's early days and 
is still with the company today
 
 Another great engineer joined shortly thereafter, and was also offered a similar grant
 
 The early grants for the whole team can be seen in the table below
Case Study: 'Pied Piper'
Original Team & Grants
# shares % of company
Total company
12,500,000
100.0%
Target ESOP
937,500
7.50%
Original Team & Grants
# shares % of company
ESOP
Allocated
Engineer 1 (first hire)
125,000
1.00%
Engineer 2 (second hire)
112,500
0.90%
Product 1
87,500
0.70%
Total ESOP
325,000
2.60%
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 'Pied Piper' is now post-Series A. The co-founders  
have established an ESOP, and the pool represents 9%  
of all outstanding equity (allocated and unallocated)
 
 The current team allocations can be seen in the  
table below
Case Study: 'Pied Piper'
Post-Series A
# shares % of company
Total company
15,000,000
100.0%
Target ESOP
1,500,000
10,00%
Post-Series A
# shares % of company
ESOP
Allocated
Engineer 1 (first hire)
125,000
0.83%
Engineer 2 (second hire)
112,500
0.75%
Engineer 3
15,000
0.10%
Engineer 4
15,000
0.10%
Product 1
87,500
0.58%
Sales /Biz Dev 1
3,000
0.02%
Sales / Big Dev 2
3,000
0.02%
Marketing Mgr 1
4,000
0.03%
Unallocated
1,135,000
7.57%
Total ESOP
1,500,000
10.00%
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Case Study: 'Pied Piper'
 
 The co-founders have decided to continue giving grants to all employees going forward
 
 There are key hires to be made over the next 18 months, including:
 
 COO, who will also act as Head of Sales; VP of Marketing; and VP of Finance
 
 The founders' plan anticipates the following grants :
This is a refresh grant 
for the first Engineer
Post-Series A
# shares
% of company
Total company
15,000,000
2100.00%
Target ESOP
1,500,000
1-120101-1-1-10%
ESOP
Allocated  Existing
Engineer 1 (first hire)
125,000
0.83%
Engineer 2 (second hire)
112,500
0.75%
Engineer 3
15,000
0.10%
Engineer 4
15,000
0.10%
Product 1
87,500
0.58%
Sales /Biz Dev 1
3,000
0.02%
Sales / Big Dev 2
3,000
0.02%
Marketing Mgr 1
4,000
0.03%
Allocated  New
COO / Head of Sales
300,000
2.00%
VP Finance
75,000
0.50%
VP Marketing
60,000
0.40%
Engineer 5
22,500
0.15%
Engineer 6
22,500
0.15%
Product 2
6,000
0.04%
Sales / Biz Dev 3
1,500
0.01%
Sales / Biz Dev 4
1,500
0.01%
Allocated  Refreshes
Engineer 1
18,750
0.13%
Unallocated
627,250
4.18%
Total ESOP
1,500,000
10.00%
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 How do I Set a Strike Price for 
Employee Options?
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What Strike Price Should Options Have?
The strike price of employee options generally increases over time, both in absolute terms and as a percentage of 
the corresponding price paid by investors. 
Why?
 
 Taxes are typically optimised for both the company and employee by keeping the strike price as low as 
possible during the earliest stages of the company
 
 Lower strike prices for early employees helps to appropriately incentivize them
 
 Be sure to discuss all tax implications with your tax expert!
Pre-seed and at seed, strike price 
is typically very low in absolute 
terms and vs that paid by investors 
Employee Strike Price vs Share Price of Latest Round
By Series C, the discount 
for employee strike price is 
significantly reduced 
If the company IPOs, employee 
options are priced the same as the 
market price 
Time
100% 
80% 
60% 
40% 
20% 
0% 
Strike price stays very low  
vs. the price paid by  
investors through  
Series A 
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Why are Employee Options Priced  
Differently than Those of Investors?
Fair Market Value 
A company will often determine the appropriate exercise price for  
options based on the fair market value (generally lower than the valuation 
agreed upon by VCs and other investors) to ensure favourable tax 
treatment on exercise 
*Important note: If the exercise price for options is set lower than the 
appropriate fair market value, employees may face tax consequences 
at exercise. 
In some jurisdictions, this process is required of companies of a certain 
size or stage, and often must be completed or validated by a third party
 
 UK: HMRC Shares and Assets Valuations (SAV) offers some flexibility 
in pricing
 
 US: 409A valuation
*Important note: Balderton is not, and does not claim to be, qualified to 
provide the fair market value of a company or to set corresponding strike 
prices for employee options. Please ensure you seek advice from qualified 
financial, legal, and tax advisors to understand the requirements and 
nuances of this process in your jurisdiction(s).
$6
$0.90
Why is there a difference  
in price?
 
 Investors typically receive 
'preferred' shares, which have 
special rights and privileges 
that the common shares 
gained from employee options 
don't have (such as liquidation 
preferences).
 
 To compensate common 
shareholders for this difference, 
the exercise price is set at  
a discount of as much as  
70-90% at Series A & B
Price paid by VCs in latest funding round
7 
5 
4 
2 
-0 
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When Should I consider a Stock Split?
The number of shares in the company impacts the value of each share, and 
thus the strike price for employee options:
 
 If the company is valued at $10M and there are 1,000 total shares outstanding, 
each has a value of $10,000, whereas if there are 10M total shares outstanding, 
each has a value of $1
 
 If employee options are priced at an 85% discount to the investor value, the strike 
price the of each of the higher-valued options is $1,500, where the strike price of 
each of the 10M shares is $0.15
Through Series B, you should aim to keep the share price no higher than $1-$2.
We find that employees respond more favourably to grant offers that reflect a 
greater number of options at a lower strike price both because this enables them 
to potentially exercise smaller portions of their grant at different times, and because it 
emotionally 'feels' like a more significant grant with a greater number of options
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 How do I help employees understand 
and value their equity?
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How do I Communicate the  
Size of a Grant?
% of company
Number of shares
Monetary value  
(,$,)
There are a few ways to articulate the size of an equity grant. In different contexts, it's 
useful to know how to communicate that value in alternative ways.
 
 Often used in framing grants to first handful of employees and management team 
(or experienced) hires
 
 Caution: don't anchor most employees to a % ownership, as this will change over 
time due to dilution
 
 We recommend using this as the fundamental way to think about and 
communicate all grants
 
 Illustrates what the shares are worth today
 
 Facilitates a discussion around the potential upside for the employee if the 
company achieves an exit  Sell the dream, but with realistic expectations!
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How do I Express the Value of a Grant 
to Experienced or C-level Hires?
Key management team members and experienced hires will often think about grants in terms of % of the company.  
It's important to be prepared to communicate their grants as such
You should:
 
1. 
Know the number of fully diluted shares outstanding for the company 
 
2. 
Articulate the grant in terms of % of company and number of shares 
 
  
i.e. If the company has 10M shares outstanding, and you grant a COO 2% at hiring, the grant is 200,000 shares 
 
3. 
Present what the value of the grant today by using the employee's strike price and most recent company valuation by  investors i.e.   
 
  
If the COO's strike price is $0.15 but the most recent fundraising with investors was $10M (or $1/share), the value of the options to  
 
 
  
the COO today is 200,000 x ($1- $0.15) = $170,000 
 
4. Communicate your vision for the company in terms of a realistic potential future valuation to illustrate the potential upside for the   
 
 
  
employee, taking into account anticipated dilution. Dilution occurs as a result of new financing rounds or  the issuance and   
 
 
 
  
subsequent exercise of new options (see slide 33 for an example of dilution). i.e. If you believe the company will potentially   
 
 
  
achieve an exit at $500M and assume 30% dilution, the potential value of the shares to the COO in the  future is 200,000 x ($35 - 
 
  
$0.15) = $6,970,000, representing an upside of $6.8M 
 
5. 
Know the detailed terms of the grant. It may be helpful to prepare a summary sheet that includes grant date, number of shares,  
 
 
  
strike price, and vesting schedule for the grant for clarity. Do not include percent of company or potential upside unless you've  
 
 
  
clearly stated that these are current and potential, respectively 
 
6. Keep any contracts or documents regarding options grants separate from employment contracts 
 
7. Be transparent! It is essential to be clear and accurate when communicating grants to employees 
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How do I Express the Value of a Grant 
to General Employee Hires?
For other employees you should sell the current value of the grants, as well as potential upside
You should:
 
1. 
Articulate the grant in terms of number of shares and monetary value, using the employee's strike price and most recent company  
 
 
  
valuation by investors. i.e. If you grant an employee 5,000 options at a strike price of $0.15, but the most recent fundraising with   
 
 
  
investors was $10M (or $1/share), the value of the shares to the employee today is 5,000 x ($1 - $0.15) = $4,250 
 
2. 
Communicate your vision for the company in terms of a realistic potential future valuation to illustrate the potential upside for the  
 
 
  
employee, taking into account anticipated dilution i.e. If you believe the company will potentially achieve an exit at $500M with an  
 
 
  
assumed 30% dilution, the potential value of the shares to the employee in the future is 5,000 x ($35 - $0.15) = $174,250 
 
3. 
Know the detailed terms of the grant. It may be helpful to prepare a summary sheet that includes grant date, number of shares,  
 
 
  
strike price, and vesting schedule for the grant for clarity. Do not include percent of company or potential upside unless you've  
 
 
  
clearly stated that these are current and potential, respectively 
 
4. 
Keep any contracts or documents regarding options grants separate from employment contracts 
 
5. 
Be transparent! It is essential to be clear and accurate when communicating grants to employees 
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Ownership
Dilution %
Founder(s)
100%
93%
69%
50%
40%
34%
29%
71%
ESOP
8%
6%
4%
3%
3%
2%
68%
Seed investors
25%
18%
14%
12%
11%
58%
A investors
28%
22%
19%
17%
41%
B Investors
20%
17%
15%
26%
C investors
15%
13%
13%
How Does Dilution Work?
 
 What is it? Dilution is a reduction in the relative ownership of a company for existing shareholders due to the creation of new 
shares. It occurs, for example, as a result of a new financing round or the issuance and subsequent exercise of new options
Series
Founding
ESOP Creation
Seed
A
B
C
IPO
Valuation ($M)
0.25
1
3.2
25
75
200
750
Amount raised ($M)
0
0
0.8
7
15
30
100
Pre-money ($M)
0.25
1
2.4
18
60
170
650
% dilution to existing 
shareholders
0.0%
7.5%
25.0%
28.0%
20.0%
15.0%
13.3%
 
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 Balderton Capital 2017. All rights reserved
What's an Example of a Grant  
Summary Sheet?
Sample ESOP Terms of Option Summary
Date of Grant: 1 January 2017
Vesting Commencement Date: 31 January 2017
Number of Options: 5,000
Exercise Price: $0.15
Timetable under which the Options will Vest: These Option Shares shall vest over 
4 years, 25% of the total grant on the first anniversary of the Vesting Commencement 
Date, and the remainder in equal instalments of 1/36 every month for the subsequent 
3 years.
Exercise and expiry conditions (if relevant): 
All terms subject to board approval.
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 What are the Details of Vesting, 
Exercise, and Refresh?
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What Vesting Schedule Should I Use?
Typical Terms
Typical Criticisms
Alternative  
Schedules
 
 Balderton recommends: 4-year vesting period, one year cliff,  
monthly vesting thereafter 
Why?
 
 Follows industry standardused by most tech start-ups
 
 Offers balance between meaningful initial grant size and incentive for employee to 
stay at the company
 
 Is understood by, and is likely consistent with, acquirers
 
 Employees receive a chunk of equity at end of month 12, but earned it in the 
preceding 12 months
 
 4 year vesting period, one year cliff, quarterly vesting thereafter; used by Facebook
 
 6-year vesting period, one year cliff, monthly vesting thereafter; used by AngelList
 
 4 year vesting period, back-weighted vesting (ie. 10% / 20% / 30% / 40% in each 
year); used by Snapchat
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 Balderton Capital 2017. All rights reserved
What Does a Vesting Schedule Look 
Like in Practice?
Note: See additional materials for an example of employee vesting schedules under 
different terms.
Monthly Vesting Schedule
End of Month
1
2
3
12
13
14
15
24
36
47
48
Initial Grant
10,000
Monthly Vesting
-
-
-
2,500
208
208
208
208
208
208
208
Total Vested
-
-
-
2,500
2,708
2,917
3,125
5,000
7,500 9,792 10,000
% Vested
0%
0%
0%
25%
27%
29%
31%
50%
75% 98%
100%
Total Unvested
10,000
10,000
10,000
10,000
7,500
7,292
7,083
6,875
5,000
2,500
208
-
% Unvested
100%
100%
100%
100%
75%
73%
71%
69%
50%
25%
2%
0%
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 Balderton Capital 2017. All rights reserved
Exercise Window
 
 What is it? When an employee departs from a company, they may exercise, or purchase their vested 
options at the strike price, within a specified amount of time. (Because this window does not start until 
departure, employees that remain at the company are not impacted by this term.)
Typical Terms
Typical Criticisms
Alternative  
Windows
 Balderton recommends: 90 days after employee departure 
 
Why?
 
 Provides enough time for most employees to collect the liquidity to exercise their options as desired
 
 Also provides the company with a reasonable expiry date for planning purposes, the ability to make bespoke 
exceptions for retention or hiring purposes, and the ability to roll any expired options back into the pool
 
 Increasingly, this is the industry standard
 
 (Still) Too short:
 
 Unduly penalizes employees for agreeing to have less liquidity due to lower salary compensation in early days
 
 30 to 60 days: shorter; can be viewed as harsher for employee
 
 1-10 years: seen as way to not penalize employees who have foregone liquidity in the form of reduced 
compensation, especially in early days. However, long windows extend a period of uncertainty around 
unexercised options, making it difficult for the company to plan and manage the pool. Longer windows 
also reduce the grant's retention power and shift the advantage to ex-employees, who can wait for further 
indications of potential upside instead of mandating the financial decision of paying the exercise price 
immediately upon on leaving
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Should I Give Employees  
Acceleration Clauses?
Acceleration  
Clauses
 Balderton does not recommend acceleration clauses for most employees
 
 Where we see acceleration clauses for C-level executives, they typically provide acceleration for 50-100% of 
unvested options when the criteria of a double trigger clause are met
What is it?
  Enables options to vest before the scheduled date due to the achievement of a milestone, or to a company 
event (exit, etc.), called a 'trigger'
Why is it not recommended?
  Can be less attractive to an acquirer in the case of sale, as it requires the acquirer to re-incentivize talent with 
new equity
What kinds of triggers occur?
 
 Single trigger: A type of acceleration achieved through accomplishment of single criterion (most typically the 
sale of the company). This is not very common.
 
 Double trigger: Acceleration achieved through the accomplishment of a combination of two criteria (most 
typically the sale of the company and the involuntary termination of the employee within 12-24 months after 
sale). This is found more commonly than single-trigger acceleration.
 
 Board discretion: A type of acceleration that is not automatic, but decided by the Board. This can be used to 
reward some employees selectively.
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Should I Have a Bad Leaver Clause?
Good leaver vs.  
Bad leaver
 Balderton does not recommend bad leaver clauses for employees
What is it?
 
 Allows the company to reclaim vested options from an employee who leaves under terms designated as 
those of a 'bad leaver'
Why is it not recommended?
 
 Tone: Starting your relationship with a new hire by negotiating the conditions under which they could lose their 
equity sets the wrong tone for their future at the company
 
 Reputation: Reclaiming 'bad leaver' equity will nearly always be discussed both internally and externally, and 
can cause concern in existing and prospective employees about the security of their own stakes
 
 Competition: Your competitors may impose bad leaver provisions in their options schemes, so avoiding this 
could be a competitive edge in hiring
 
 Objectivity: Employees should retain their earned part of the company's success regardless of the 
circumstances of their departure
  For specific circumstances, companies should consider clauses for 'super' bad leavers (e.g. fraud, criminal 
behaviour against the company, etc.)
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When and Why Should I Give 
Subsequent Grants to Employees?
Retention 
Incentive
Reward
Evergreen / Refresh: Additional shares awarded on a regular basis beginning 3-5 years 
after an employee's initial grant, to help mitigate the decrease in still-unvested options
 
 May be another single, large grant, or repeating grants of 25-50% the size of a grant the 
employee would receive if hired today (depending on length of vesting and grant cadence)
Performance-based: Awarded as part of a bonus package, linked to target performance 
metrics of the individual, team, or company
 
 Typically determined as a percent of base salary, then multiplier based on 
performance levels
Discretionary / outstanding performance: Awarded to reward unique contributions
 
 These grants should be for non-executives
 
 The size of these grants might be as large as 50% of the size of the grant the employee 
would receive if hired today
We believe every company should use equity for retention and / or incentives.
Some companies (e.g. LinkedIn) successfully use equity for rewards.
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  As time goes on, the amount of unvested options from an initial grant declines 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 As the amount of vested options increases, those that remain unvested become 
less meaningful in incentivising the employee to stay with the company
 
 Many companies begin to see turnover from employees as the date of their full 
vesting approaches
Why Give Refresh Grants?
Vesting Schedule
Year
1
2
3
4
5
6
7
8
Grant
10,000
Yearly Vesting
2,500
2,500
2,500
2,500
-
-
-
-
Total vested at YE
2,500
5,000
7,500
10,000
10,000
10,000
10,000
10,000
% vested
25%
50%
75%
100%
100%
100%
100%
100%
Total unvested at YE
7,500
5,000
2,500
-
-
-
-
-
% unvested
75%
50%
25%
0%
0%
0%
0%
0%
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What Vesting Schedule Should I Use for
Refresh Grants?
Typical Terms
Typical Criticisms
Alternative  
Schedules
  Smaller, annual refresh grants or second large grant
 
 Granted year 4 after initial grant, no delay before vesting begins, 25% / 25% / 25% / 25% 
annual vesting schedule
 
 Despite a range of potential schedules, none perfectly smooth the drop in outstanding 
unvested options 
 
 Refresh grants, especially to early employees, are rarely meaningful in size and value 
relative the initial grant
 
 Back weighted: Granted year 4 after initial grant, no delay before vesting begins, 10% / 
30% / 30% / 30% annual vesting schedule
 
 Two-year: Granted year 4 after initial grant, 0% / 50% / 50% / 0% annual vesting 
schedule
Refresh grants see more variability in their vesting structure than initial grants
You can find a more detailed planning tool for the size and vesting period of refresh grants here.
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 To mitigate the decline  of unvested options, 'refresh' grants can be issued to provide additional options to the employee
 
 The new unvested options increase and extend retention incentives for the employee 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 The size of these grants should be based on the employee's current value to the company (as if you were hiring him or her at the 
time of the refresh)
You can find a more detailed planning tool for the size and vesting period of refresh grants here.
Vesting Schedule
Year
1
2
3
4
5
6
7
8
Grant
10,000
2,500
2,500
2,500
2,500
Initial Grant Vesting
2,500
2,500
2,500
2,500
-
-
-
-
Refresh 1 
-
-
-
625
625
625
625
-
Refresh 2
-
-
-
-
625
625
625
625
Refresh 3
-
-
-
-
-
625
625
625
Refresh 4
-
-
-
-
-
-
625
625
Total Yearly Vesting
2,500
2,500
2,500
3,125
1,250
1,875
2,500
1,875
Total vested at YE
2,500
5,000
7,500
10,625
11,875
13,750
16,250
18,125
% vested
25%
50%
75%
85%
79%
79%
81%
91%
Total unvested at YE
7,500
5,000
2,500
1,875
3,125
3,750
3,750
1,875
% unvested
75%
50%
25%
15%
21%
21%
19%
9%
How do Refresh Grants Work?
One possible refresh grant structure:
Small annual grants made beginning in Year 4:
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 Balderton Capital 2017. All rights reserved
 
 While made at the end of Year 4, conversations around this type of grant begin earlier so that the employee is aware the grant will 
be awarded as the unvested portion of his or her initial grant decreases
 
 May be preferred because it offers clean refresh structure that mimics initial grant, does not set precedent for annual grants, and 
makes the refresh grant the largest possible size optically
 
 Does not mitigate turnover in later stages of vesting without early, proactive communication
Vesting Schedule
Year
1
2
3
4
5
6
7
8
Grant
10,000
10,000
Initial Grant Vesting
2,500
2,500
2,500
2,500
-
-
-
-
Refresh 1
-
-
-
-
2,500
2,500
2,500
2,500
Total Yearly Vesting
2,500
2,500
2,500
2,500
2,500
2,500
2,500
2,500
Total vested at YE
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
% vested
25%
50%
75%
100%
63%
75%
88%
100%
Total unvested at YE
7,500
5,000
2,500
-
7,500
5,000
2,500
-
% unvested
75%
50%
25%
0%
38%
25%
13%
0%
Another typical refresh grant structure:
Second large grant made at the end of Year 4 (to begin vesting in Year 5):
You can find a more detailed planning tool for the size and vesting period of refresh grants here
How do Refresh Grants Work?
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 May be preferred because it smooths % unvested over time, and backweighting incentivizes retention through later stages of 
refresh vesting
  Takes longer time to build in terms of number of refresh options vesting each year, and potential dip in number of options vesting in 
Year 5 may present retention risk
Vesting Schedule
Year
1
2
3
4
5
6
7
8
Grant
10,000
2,500
2,500
2,500
2,500
Initial Grant Vesting
2,500
2,500
2,500
2,500
-
-
-
-
Refresh 1
-
-
-
250
750
750
750
-
Refresh 2
-
-
-
-
250
750
750
750
Refresh 3
-
-
-
-
-
250
750
750
Refresh 4
-
-
-
-
-
-
250
750
Total Yearly Vesting
2,500
2,500
2,500
2,750
1,000
1,750
2,500
2,250
Total Granted
10,000
10,000
10,000
12,500
15,000
17,500
20,000
20,000
Total vested at YE
2,500
5,000
7,500
10,250
11,250
13,000
15,5000
17,750
% vested
25%
50%
75%
82%
75%
74%
78%
89%
Total unvested at YE
7,500
5,000
2,500
2,250
3,750
4,500
4,500
2,250
% unvested
75%
50%
25%
18%
25%
26%
23%
11%
Example of alternative refresh grant structure: 
 
Small annual grants with 10% / 30% / 30% / 30% vesting schedule:
You can find a more detailed planning tool for the size and vesting period of refresh grants here
How do Alternative Structures Work?
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 May be preferred because it smooths % unvested over time, and quickly builds in terms of number of refresh options 
vesting each year
 
 Shortens retention power of each individual refresh grant as effective vesting period is two years, and potential dip in 
number of options vesting in Year 5 may present retention risk
Vesting Schedule
Year
1
2
3
4
5
6
7
8
Grant
10,000
2,500
2,500
2,500
2,500
Initial Grant Vesting
2,500
2,500
2,500
2,500
-
-
-
-
Refresh 1
-
-
-
-
1,250
1,250
-
-
Refresh 2
-
-
-
-
-
1,250
1,250
-
Refresh 3
-
-
-
-
-
1,250
1,250
Refresh 4
-
-
-
-
-
-
-
1,250
Yearly Vesting
2,500
2,500
2,500
2,500
1,250
2,500
2,500
2,500
Total Granted
10,000
10,000
10,000
12,500
15,000
17,500
20,000
20,000
Total vested at YE
2,500
5,000
7,500
10,000
11,250
13,750
16,250
18,750
% vested
25%
50%
75%
80%
75%
79%
81%
94%
Total unvested at YE
7,500
5,000
2,500
2,500
3,750
3,750
3,750
1,250
% unvested
75%
50%
25%
20%
25%
21%
19%
6%
Example of alternative refresh grant structure: 
 
Small annual grants with 0% / 50% / 50% / 0% vesting schedule:
You can find a more detailed planning tool for the size and vesting period of refresh grants here
How do Alternative Structures Work?
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 What are Variations on  
Stock Options?
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Why are Alternative Types of  
Equity Used?
The type and structure of equity you offer is usually driven by tax 
considerations relevant to the country in which it is issued, as these 
may significantly impact its value to employees.
In many countries, the tax considerations continue to change  
and evolve.
We are not your tax experts, but you should talk to one if you have 
questions! We can help you find local advisers or precedents to guide 
you through this.
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 Balderton Capital 2017. All rights reserved
What Structures of Equity are Most  
Common in Specific Countries or Jurisdictions?
Country
Most common form(s)
ESO, mainly EMI
 
 Tax efficient structures in UK: if EMI strike price set at market value, no tax to employee on 
exercise (up to 250K)
 
 Company should obtain a valuation agreed with HMRC before options are granted
 
 Options are not tax efficient for employees
 
 VSP mimics economic benefits for employees without providing voting rights, etc. of other 
shareholders
  Both are free to employee up front
 
 BSPCE taxed as income; Free shares taxed as capital gains, depending on time held  
(+ social charges)
  BSPCE strike price based on share price
 
 More tax efficient than options
 
 Mimics economic benefits for employees without providing voting rights, etc. of  
other shareholders
 
 Options are not tax efficient for employees
 
 Warrants: employee pays small amount up front
 
 Shares: must be done on market terms, purchased by employee up front (ideal for low valuation)
VSP
BSPCE 'Founder Warrants',  
AGA 'Free Shares'
Depository rights provided  
through STAK
Warrants, Shares
Note: Please seek advice from qualified financial, legal, and tax advisors to understand the specific tax considerations of your jurisdiction(s).
Reason(s)
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What are the Other Types of Equity  
Used in Other Situations?
Restricted stock units (RSUs)
 
 What are they? RSUs represent a  promise to issue common stock (or the cash value of common stock) at a later date at 
the fair market value of the shares on that date
 
 Are they recommended? They are not generally advisable for, or used in, early-stage companies due to their less 
favourable tax treatment in most jurisdictions, more limited upside (but also limited risk), and their inability to be offered in 
secondary sales 
   RSUs typically are not attractive for company or employee until the company is public, expect in specific  
 
 
 
 
     cases or jurisdictions where RSUs may be used for tax purposes 
   Employees are typically taxed upon delivery of the units (vesting, not exercise) 
   Note: RSU  restricted stock 
Growth Shares
 
 What are they? A separate class of shares that reward employees (typically management or key employees) for growth 
company above a "threshold" or "hurdle", specified at issue
 
 Are they recommended? Although growth shares can be more tax-efficient than options in rewarding key team 
members for achieving specific goals, they are generally unnecessarily complicated for early-stage teams. However, they 
may be a good solution in the U.K. for later stage companies.
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 How do I Present This  
to the Board?
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Am I Required to Share Employee 
Grant Details with the Board?
   Yes, most shareholder agreements require you to share the ESOP scheme 
with your board and to get board approval for employee equity grants
  At a minimum, the board must generally approve any 'exceptional' grants
  Employee grant approvals typically happen on at least a quarterly basis
  After Series A, a Compensation Committee should be formed as a 
subcommittee of the board, responsible for approving employee  
equity grants
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 Balderton Capital 2017. All rights reserved
What Should I Tell the Board  
About ESOP?
1. It is helpful to present the employee options pool to the  
 
board in the context of all existing shares outstanding
 
Build a summary cap table that includes a summary of  
 
 
vested and unvested employee shares, as well as what   
 
remains ungranted to employees within the pool
Company A - Summary Cap Table
Founders' shares
#Shares
% of Class
% Fully Diluted
Founder 1
2,500,000
50.0%
16.7%
Founder 2
2,500,000
50.0%
16.7%
Total
5,000,000
100.0%
33.3%
Employee options pool
Granted, vested
320,000
21.3%
2.1%
Granted, unvested
548,050
36.5%
3.7%
Proposal for approval
16,950
1.1%
0.1%
Ungranted ESOP
615,000
41.0%
4.1%
Total
1,5000,000
100.0%
10.0%
Preferred
Investor 1
1 ,100,000
12.9%
7.3%
Investor 2
600,000
7.1%
4.0%
Investor 3
3,000,000
35.3%
20.0%
Investor 4
1,750,000
20.6%
11.7%
Investor 5
2,050,000
24.1%
13.7%
Total
8,500,000
100.0%
56.7%
Total Shares
15,000,000
100%
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 Balderton Capital 2017. All rights reserved
What Should I Tell the Board  
About ESOP?
 2. Create an ESOP grant plan and get approval from the board
 See below for an illustrative example of what you can present to the   
 
board on an annual basis to outline expected hires in the year to come
Company B - ESOP Grant Plan
Role
Standard Grant
Standard % Equity
Planned Hires
Total Options
Total % Equity
CFO
150,000
0.50%
1
 150,000 
0.50%
VP WW Sales
125,000
0.42%
1
 125,000 
0.42%
Sales Manager
10,000
0.03%
3
 30,000 
0.10%
Account Executive
 3,000 
0.01%
12
 36,000 
0.12%
Inside Sales Rep
 1,500 
0.01%
12
 18,000 
0.06%
Pre-sales Rep
1,500 
0.01%
4
 6,000 
0.02%
 
Engineering Manager
10,000
0.03%
2
 20,000 
0.07%
Senior Tech Lead
 4,000
0.01%
4
 16,000
0.05%
Senior Engineer
 3,000 
0.01%
8
 24,000 
0.08%
Junior Engineer
 2,000 
0.01%
12
 24,000 
0.08%
Others
25
 50,000 
0.17%
Annual Total
84
 499,000 
1.66%
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 Balderton Capital 2017. All rights reserved
What Detail Should I Show  
About Individual Grants?
3. Provide a summary of all grants for which you are seeking approval
 
Highlight any exceptions to established ESOP plan and clearly articulate why.
 
See below for a specific example, unrelated 
Company A - ESOP Grant Summary for Board Approval - 30-Jun-2017
Name
Role
Proposed Grant (# shares)
Type of Grant / Approval 
Needed For
Exception ?
Reason for Exception / Notes
Strike Price 
($)
Date Vesting 
From
R.Geller
VP
7,500
Refresh
Y
One-time reward
4.15
30-Jun-17
J. Tribbiani
Jr. Associate
800
First grant
N
4.37
30-Jun-17
R. Green
Sales Mgr
1,000
Refresh
N
4.37
30-Jun-17
C. Bing
Director
5,000
First Grant
N
4.37
30-Jun-17
M. Geller
Director
1,250 Uplift for high performance
Y
Outside performance 
expectations
4.37
30-Jun-17
J. Gunther
Sales Associate
800
First grant
Y
4.37
30-Jun-17
P. Buffay
Jr. Associate
600
First Grant
Y
Risky hire
4.37
30-Jun-17
Total to be approved 
16,950
% of Total ESOP
1.1%
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 Balderton Capital 2017. All rights reserved
Where Can I Find  
More Information?
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 Balderton Capital 2017. All rights reserved
Does Balderton Have any  
Other Tools?
Balderton has created a workbook to help you better understand some of the topics 
discussed in this deck. It offers worksheets for:
  Grant Value Summary to express the size  of an individual grant in different ways, and to 
show its size relative to the rest of the budget in a given round 
 
 Initial Grant Vesting to show the quarterly vesting of an initial grant based on different 
vesting schedules
  Refresh Vesting to show the vesting of refresh grants based on different vesting 
schedules, and how they impact the number of forward vesting shares for an employee
  Board Summary Example: sample tables to summarize proposed grants for  
Board approval
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 Balderton Capital 2017. All rights reserved
Where Can I Read and Learn More?
Key resources:
 
 Sources and additional resources: Employee Equity Resources
 
 AVC (Fred Wilson's blog): series on employee equity
 
 Thomson Reuters Practical Law: overview of tax / legal structures by region
 
 Wealthfront equity plan and blog
 
 Accion: overview of ESOPs and general education
</p>