How To Get Option Plans Right – The Buffer Case Study
Buffer recently published a presentation describing their option plan, i.e., the way they distribute equity to their key employees to motivate them and keep them engaged.
Such plans are very common in VC-backed startups, so fundraising entrepreneurs need to think about them when they go on the road meeting VCs.
Here are our comments on Buffer’s option plan, called “Open Equity”.
You can download this presentation by clicking on the link at the end of this post
– 20% is exceptionally generous. 10% is more common
– There are two ways to distribute options: we call them “Spray and Pray” and “Circle of Trust”. In our experiences, the latter works better if done right. Not sure how many people are concerned here but it looks like it’s closer to a Circle of Trust approach
– 2 months to get options is a bit too short. Unless there’s a 1-year cliff attached meaning you don’t get anything If you’re fired or resign in the first year
– Other conditions such as vesting and valuation formula are very important to consider
– It’s generally better to talk amounts (as they did in the end) vs equity %.
Beneficiaries are not usually familiar with these schemes (outside of Silicon Valley) and getting 0.x% of a company may not seem very motivating
– A good way to think about it is how much does the company need to grow for the Beneficiary to make x times their base salary. These scenarios must take VC liquidation preference into account and Beneficiaries need to be told how it all works
> Keep it simple and explain how the company creates value, but be transparent with all the conditions
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