As your startup grows, if you’re heading toward a fundraising round or expanding your team, now might be the right time to think about setting up a stock option plan.
You have already issued restricted stock to early team members, but as valuations rise and your team grows, stock options can offer a smarter, more flexible way to attract and retain talent while keeping your cap table clean.
When to Consider an Option Plan
Here are a few signs that it’s time to transition from stock grants to an option plan:
- You’ve raised more than $50k or your revenue is growing quickly: Cash in the bank means your startup is more valuable. That value is reflected by an increase in the price of common stock. A higher common stock price makes restricted stock grants more expensive for new team members.
- You’re preparing to hire employees / your team is growing: Hiring key talent, especially when cash is tight, means you’ll need to offer competitive equity packages. Stock options allow you to defer the financial burden for new hires (no upfront cash needed, no income tax burden), while giving them meaningful future ownership potential.
- You’re planning to fundraise: Investors often expect a stock option pool to be created prior to funding your startup. Carving out an option plan based on your hiring plan prepares your startup to reward new team members and avoid excess dilution.
- Governance Simplicity: Keeping your cap table manageable is critical in the early stages when your team is growing but resources to manage shareholders are limited. Stock options give you flexibility—your employees don’t become shareholders until they exercise, which keeps your governance simpler.
How We Can Help
Gust Launch makes adopting an option plan easy!
- Establish your option plan in a few simple steps, plan paperwork and board and shareholder consents included
- Maintain plan compliance with rule 701
- Establish strike price safe harbor with yearly, audit-defensible 409a valuations
- Issue options and manage employee exercise and termination
Whether you’re about to fundraise, hire, or just starting to think about an option plan, Gust Launch has the tools you need to stay ahead. Ready to get started? Head to your Gust Launch dashboard to upgrade to Raise.
Additional Resources:
Blog: Scaling up? Here’s when an option plan can help
FAQ: How can I adopt an option plan through Gust Launch?
Video: Managing Early Equity - Secure your startup's control and upside from the beginning
We’re here to help you navigate the complexities of equity and grow your startup with confidence. Let me know if you have any questions or would like to join a Q&A session to speak with Gust’s experts to see if adopting an Option Plan makes sense for you.