Startups that are cash-poor often resort to more creative compensation options. A recent event at co-working space Atlanta Tech Village featured a panel discussion on startups and equity compensation moderated by Thomas Armstrong, vice president at Silicon Valley Bank. He was joined by panelists Devon Wijesinghe (Insightpool), Kenji Kuramoto (AcuityCFO), and Brian Gordon (DLA Piper). Here are the highlights:
- Panelists discussed the emergence and growing popularity of phantom stock plans. While stock options remain the popular go-to for startups, phantom stock and – for LLCs – profits interest are also gaining traction.
- Panelist Devon Wijesinghe cut to the quick with remarks like:
When you don’t have any money, you bribe people with bullshit.
and, in regard to offering large chunks of equity before knowing how long an employee will stay:
The more generous you are at the beginning, the more trouble you could have getting top talent later.
- The winning question, which garnered one lucky participant a bottle of pinot noir, addressed the topic of equity compensation based on performance milestones. Panelist Brian Gordon responded, stating that performance-based milestones are a good idea if they make sense for the business, as in the example of a sales position. Regardless of the situation, Gordon continued, it is important to outline milestones in such a way that they are clear and will stand up in a court of law.
- Each panelist stressed how critical it is for companies to know their stock valuation before discussing equity compensation. They also agreed on the importance of keeping clear and easily-tracked written records rather than relying on verbal agreements.
Photo Credit: Ken Teegardin via Flickr