Equity Compensation - Things to consider

If you have been bitten by the start-up bug and are considering equity offers from start-ups, read on.

1.       Equity or Esops

Equity differs from Employee stock options as it makes you a stockholder, eligible for dividends and makes you a participant in certain decision making.

Employee stock options convert to shares only after the options have vested and you have exercised your options.  Options have a minimum vesting period of one year as per SEBI guidelines.

Ideally, founders are granted equity or Restricted stock units (RSUs)- equity that is granted after certain restrictions like performance, time spent are met. RSUs can be optimized for taxes when granted at par value.  Companies are reluctant to offer this as it comes with an increased overhead of an extra stockholder and other legal requirements like an escrow etc.

Exercising the options includes paying the exercise price and a tax payment. In India, a perk tax is charged as per your income tax slabs on the notional income earned by the appreciation of the underlying shares.

Ideally, the exercise value should be at par value for employees to reap benefits of share price appreciation. 

Late stage investors often ask for an additional optional pool to be created for newer employees and may keep the exercise price at the investment price.

Find it out if the company is willing to pay the taxes else the employee will have to bear this. This can be quite significant and you would be paying taxes on unrealised income. The guidelines are not clear if the loss can be adjusted in future taxes if the shares never become liquid.

Also note that the holding period for capital gains for RSUs starts at the day when you get them. The holding period for shares earned via stock options start only after you have exercised the options.

Options also have an expiry period before which they need to be exercised. A standard norm is ten years.

2.        Grant period and vesting schedule

The stocks come to employees at a given vesting schedule.  Every year you get a proportion of your total equity grant as defined by the company Esop policy document

A standard norm for early stage companies is equal vesting (25% of total stock granted) across first four years of service. Late stage companies have a shorter vesting cycle as they are expected to be closer to a market exit.

Early to growth stage company can have a bigger proportion (say 50%) coming in the first year and remaining divided equally across the cycle.Companies can form one single scheme for all employees or multiple schemes.

The vesting dates are important as it gives you access to equity for RSUs or a right to exercise the option in case of esops.Your options can vest to you on a monthly or an annual basis.

 A good norm from an employee perspective would be to have a “cliff” of one year for the first vesting and post that the vesting to be monthly or quarterly.

3.       Number of shares, Percentage stake ,Valuation and Exit returns

It is important to know your total number of shares as well as the percentage equity stake.

Angel funded or early stage companies often do not have good benchmarks to establish share prices. They may use aggressive revenue multiples on aggressive revenue targets to make the offered equity valuation look attractive.

It is important to understand the business plan, key metrics before agreeing on such numbers.

Early employees and significant contributors can ask for a higher percentage stake when negotiating for their overall remuneration. There is a higher risk for early stage companies than growth stage companies and hence a prospective employee should accommodate for the same. One should research the norms for equity grants for his/her role.

Once the company has an exit, often the venture investors are returned the invested amount first (preference clause) and later the returns are divided among all the stockholders ( this may include the venture investors). For start-ups that do not generate stellar returns this shall further dilute the returns of an employee.

4.       Impact of "Liquidation/Funding" events

Employees who are given common stocks will have their stake diluted in the company if fresh shares are added to new investors. E-commerce companies generally have longer gestation periods and may raise as many as five rounds of funding – the percentage stake dilution can hence be significant.

Certain class of shares may have a clause to have a proportionate fresh shares issued on any new share addition to keep the percentage stake from going down.

Investors often have a preference clause and a participative clause for next rounds of funding. This may give angel investors a way to exit their investments to later stage investors.

Esop Policy document also may have obscure "clawback clauses" which gives company/investors the right to purchase  the shares back from an employee.The Policy document also has guidelines if the employee can sell his shares to external parties. Also, guidelines on how the stock sale may happen if the company goes for an IPO.

5.       Impact of "Change of control" events

Often cash strapped start-ups get merged/acquired by other companies or key founders may leave. In such cases, the role of an employee may not remain the same as management control changes. Few employees may also be forced to leave the organisation. In such cases, there should be a provision for accelerated vesting

Standard norms include “Single trigger” acceleration of atleast one year on change of control.

“Double trigger” acceleration includes multiple events such as change of control and employee firing. In such cases all unvested shares should vest immediately .

6.       "Grace period" and ability to take the stocks post termination of employment

Grace period is the time post termination of employment in which the employee can exercise his vested options to convert them to shares. This gives employee time to generate funds for paying the taxes or the exercise price. If the stocks are listed on the markets, then the employee can exercise the shares depending on the market performance.

This can be normally from 3 months to one year.  An employee should be able to take his stocks with him post termination of employment.

I am also new to this and I write this after having received 2 such offers and working at one e-commerce start-up. Several posts on www.quora.com  have helped me understand this aspect of start-up world. Please feel free to share your suggestions.

Anuj Lakhotia

Memories of Moving On

पिरो ले माहि
यादें आसमान में ;
रंग भरेगी ये
कल की फुहार में |

आ दूर चल इनकी पुकारों  से
पुराने वादों के ताजे  घावों  से;
समेत ले  बिखरे हुए ख्वाबों  को
आएँगी राते  फिर से इन्हें सजाने को |

क्या खोया तुने, उसे जोड़े क्यों
टूटे शीशों में खुद को खोजे क्यों
समय की लहरों में इन्हें  बह जाने दे
जल कर राख इन्हें हो जाने दे
ये बैठे तो तू चल दे
ये  थकाए तो तू हंस दे
सुना इन्हें कहानिया कुछ नयी सुबह की
बयान कर फसाने उन सुनहरी रातों के

पिरो ले माहि
यादें आसमान में ;
रंग भरेगी येही
कल की फुहार में |

यूँ ही खेल खेले ज़िन्दगी
कभी आये जाए
कभी मुस्कुराएं
यह ज़िन्दगी |
ज़िन्दगी............

क्या तुम्हारी बात हो ?

ज़िन्दगी में 'कुछ हो',
तो - बात हो |

माटी से मंजिलें बना सको,
तो -तुम कुछ बात हो |
उजले चेहरे तो तमाम हैं,
एक सरल सच्ची मुस्कान हो,
तो -उम्दा बात हो |
चीर सागर मच्छी ला सको,
तो - एक करामात हो |
मोड़ आते हैं, पड़ाव आते हैं,
रस्ते का साथ फिर भी दे पाओ,
तो -तुम्हारी बात हो |

साल तुम्हारे घर में गुजरे,
चद्दर और बर्तन बदलते;
खून तुम्हारा विश्व बदल जाए,
इस लिए - माँ तुम्हारी बात हो |
जंग में लथपथ हो बदन ,
रूह, फिर भी भी ललकार लगाए,
इस लिए - सिपाही तुम्हारी जयकार हो |

आवाजों का शोर हैं हर मस्तिष्क में,
बातों से दिल पिघला सको
तो -तुम्हारी बातों की बात हो |
झूठ की लहरें बुलंद हैं,
सच्चे निशाँ कुछ छोड़ जाओं
तो- तुम प्रेरेना की बात हो |

इस पल कुछ न हों,
बस यूँ ही बिंदास हों,
तो - तुम उत्साह की बात हो |
ज़िन्दगी में 'कुछ हो',
तो - बात हो |

Bring me to home life

Chatters from home distant,
fill up my heart-
And light up my smile
Winds blowing south
Bring a scent of delight-
And chime bells of festival times
Bring me to home life, Bring me to home life !

(High pitch, fast pace)
Fete fills my way
And takes my weight away.
As the noise fades -
on employed roads,
Homecoming songs, I must say
Bring me to home life, Bring me to home life !

The touch of my room's floor
And the photo in my drawer-
Create those full smiles
Dial in the golden friends
Stories munch up the times.
Bring me to home life, Bring me to home life !

Birds fly to the woods
Ports get to the boats
Rains come down to the earth
Bring me to my paradise
Bring me to home life, Bring me to home life!
Connect me to my, Bring me to home life !

(This was written while i was packing for diwali and some good homecoming tunes were playing in the background. Enjoy!)

Adios,
Anuj Lakhotia

An eulogy

तुम चाय की इलाइची हो,
तुम स्कोत्च एक विलायती हो ,
तुम ग़ज़ल एक दुमदार हो
तुम साथी एक यादगार हो !

संग तुम्हारे पीना सीखे ,
पैमाने से गहरा उतरना सीखे,
खूबसूरती से जीना सीखे,
दरिया में बहना सीखे !
और क्या,
यह कविता भी तुम ही से लिखना सीखे !

हम साथ तुम्हारे चले
तो ज़िन्दगी में मुकाम आये
तुम साथ हमारे रहे ,
तो मुकामों में ज़िन्दगी आई !

गुरु, तुम एक कमाल हो ,
गुरु, तुम एक मिसाल हो ,
गुरु, तुम एक धमाल हो ,
अभी तो,
मेरी ज़िन्दगी का गुलाल हो !

राहें तुम्हारी आबाद रहे,
उन राहों में हम रहे,
साथ हमारा हर दम रहे,
साल ऐसे न कम रहे !

Adios
Anuj Lakhotia

Asking for more

koi hulchul jo thehre thoda aur
kuch arrzoo jo tarsaaye thoda aur

ek mazaak jo hansaye thoda aur
ek dost jo saath chootne par rahe thoda aur

aankh jo sapne sajaye har raat
bin mausam ke ho jaaye jo barsaat

ek kahani jo le mod thode aur
ek lahu jo khaule thoda aur

ek jaam jo nasha rakhe barkarar
bade roj thoda aur; aisa ek pyaar

ek dil jo dhadke ek dhadkan tej
ek zindagi jo zinda rahe har roj

Prince of Persia

Rating : Go for it 7 -8 out of 10 . Light and Fun

Likes: Gemma Arteron screen presence, Jake Gyllenhaal character and persona, setting of various scenes, few side characters esp. the guy taking care of ostrich race, few fight scenes

Average : Storyline

Dialogue: What is right needs to be done w/o fear of consequences.
The bond of brothers is the sword that is defense of the kingdom

Particular element : The sands of time that when released reverses time hold in a dagger. The naming of the protagonist Dastan meaning Champion in Persian and the character hassasin.

It is good to have a bigger role for her than seen in The Clash of Titans where her beauty was equally majestic.

Cheers,

Talking to a loved one after a long time

तेरे इंतज़ार में जल जाता हूँ
तुझसे मिलकर पिघल जाता हूँ, बह जाता हूँ
दीवाना हूँ , परवाना हूँ
शमा तेरी दीवानगी में ज़िन्दगी जी जाता हूँ !

तू प्यास हैं , बादल हैं , बरसात हैं ,
तू पवन हैं , खुशबु हैं , सांस हैं
तू धड़कन हैं , जुबान हैं , जज्बात हैं
इस मुसाफिर और तेरी जो यह मुलाक़ात हैं
ज़िन्दगी भर की एक सौगात हैं !

आज दिल को निचोड़ना चाहा हैं
किश्ती को साहिल पार ले जाना चाहा हैं
खुद को तुझमे भूलना चाहा हैं
जैसे धरती को सावन से मिलाना चाहा हैं |

बेपनाह प्यार का एक मज़ा हैं
फनाह होने का एक मज़ा हैं
रब की यही रजा हैं
की मोहब्बत ज़िन्दगी का मज़ा हैं |

Euphoria is bad, Depression is good :)- As leading indicators

Figure: Sentiment cycle of an Investor

One of my humble opinions (OMHO) is that "Pursuit is life"- which can be seen as a timeline to seek answers to the questions that interests us. These answers or insights originate from first hand or borrowed experiences. The questions and experiences remain interesting as long as what we do and whom we are with remain interesting.

Wearing another hat (WAH) -Pursuit may be driven by fear which is driven by the need to survive instead of being driven by interests. It is also limited by capability of the person and systems of the world.

In the Big Picture (ITBP), which of the sentiment from the Root Cause Analysis (RCA) is driving is (less important) < than the awareness about the sentiment and the ability to drive the driver.

Moving to the central point (MCP), the image intrigues me - specifically the denial, panic, despondency and the relief sentiments- people may not clearly identify these transitory sentiments.

Money drives the world except for a penny population. The same or a modified sentiment cycle can also manifest in pursuit of other goals/answers/experiences.

Go drive the drivers.

Cheerio,
Anuj Lakhotia

Twenty Five and Something

ला ला ला ला , ला ला
पलकों पे
सपने ले
घर से जो चले हम
हुई एक
कहानी शुरू !

हँसते खिलते
बड़ते हम
बनते सजते
महफिलों के रंग
दोस्तों से मिलें ऐसे हम
बूंदों से बूँदें मिलकर
जैसे बारिश बनती बढती रहे !

मेहनत में हो कर गुम
पाते खुद को हम
मंजिल जाने बगैर
पानी से बहें हम
राहे यूँ ही बनती बदलती रहे !

हारें भी
जीतें भी
गिरते संभलते हम
रोयें भी
नाचें भी
खुल कर जीयें हम
सूरज की किरणों से
हर सवेरो को हम
यूँही चमकते रहे !

प्यार भी करते हम
जचें भी कुछ को हम
सितम भी सहे हम
पर साथी बने ही कम
बच्चे की तरह दिल को
बुद्धू बना कर हम
यूँही मुहब्बत लुटाते रहे !

गीतों में
यादें भर
सरगम जो गाये हम
कहानी यूँही बनती बढती रहे !

हमारी अधूरी कहानी , हा हा हा हा, हा हा

Wanted to hum something. Conscious Inspiration from Lucky Ali and Silkroute. Will be happy for suggestions to make it more hummable. Happy with this though :)

Cheerio,
Anuj Lakhotia

World GDP per capita and Life Expectancy over last 200 years

I landed on www.gapminder.org and happened to compare the world countries progression over the last 200 years.

This one presentation from Hans Roling on TED is pretty funny and summarises some of the things i saw with the tools on the website.

The world average life span is expected to rise in the coming years. But, I do not see world focusing on creating 'stuff' to give meaning and fun to those extended years. The average income is increasing, the average consumption is increasing, the average wasteful consumption is increasing and the average disillusionment with the world activities has also increased.

For, India it would take 30-40 years to have the income levels matching the developed countries The progress of countries over the years indicate that it would continue being difficult for India and China with their large populations to provide higher standards of living for their diaspora.

Chasing those income levels is possible by competing continuously or outsmarting peer population if we have decided to live in India. Sounds like a ' keep running' way to live life . This is a disillusionment with India of people who have experienced better quality of life and work life abroad for few years.

Carefully Directing consumption from the increased income levels to satisfy and grow on path of your interests, chase your passions, test your capabilities, fulfil your desires and leave a better world for your next generations can be the way to live life. Desiring international standards across the breadth of country is futile.

Thoughts

सावन हमें अकेले भिगो गया कल रात में ,
बादल एक रंग का हो गया बिछड कर बरसात से !
हँसे, खेले, नाचे हम पुरे गुजरात में ,
दूर तुझसे, तेरी निगाहों से, तेरे साथ से
हसीं लम्हे जहन में बसें बिना ही गुजर गए ऐसे हालात में !

It was raining and I was drenched wet after an hour of badminton. Continued my playful mode in the rains. Wrote a stanza after sipping the Nescafe 3 in 1 instant coffee looking at the clear skies

Marmalade, Mont Kiara

It makes my day every time I go to this place Marmalade for lunch which supposedly offers me very little for very high prices. I see these beautiful people, specifically beautiful , adorable women in their middle years lost in their worlds, their own beauty, their kids, thier food, their gossip but lost to something interesting and their worries lost in their smiles lost in the lost things they are lost in. I often pick a local newspaper, a car magazine or at times a woman magazine all of which transfers me to a different world as I relish my honey dipped chicken salad with avocados and raisins. I like the red sofas, the painting on the wall, at times the soothing music and the smile which I remember used to work over there during my initial visits.Thanks Marmalade you exist and in my perspective you offer me so much by taking something of little value.

Adios
Anuj Lakhotia

17 Jan 2010

Apocalypse it happened
he had been waiting for it
for so so long
with his arms outstretched

Life raised its ugly pangs today
it had been good
for days, for weeks, for months and
for more than a year now

In its tsunami, it swept
Much of what he felt was good
Peace of mind was first to fall
Then blowed away his progress
his work he prided in
his money he saved
his meaningful way to work in the world

Standing naked after the tide
what was left was
a few friends who stuck by
his goodwill he had created for years
And a smiling grin which he always wears

More and Less

I laugh less
I work more
I play less
I gym more
I am angry less
Am calm more

I express less
I think more
I feel less
I reason more
I appreciate less
I want more

I am a man less
A machine more
Have Brothers less
Enemies more
I create less
I consume more
I distribute less
I accumulate more

I sleep less
Have dreams more
I fly less
I walk more
I spend less
I save more

I call less
I tweet more
I know myself less
Google world more
Am myself less
Am the world more

I love less
I hate more
I live less
I die more

Adios
-Anuj Lakhotia

Pool Side

Woke up early this morning and wrote this sitting on the pool side bench..few thoughts.

मोर पंख को लहू में डुबाता हैं,
पाटी पर निशाँ क्यों नहीं आता हैं !
कोई समझा दो उसे,
उस दिल का खून सफ़ेद हो जाता हैं,
दर्द और प्यार जहां लुप्त हो जाता हैं !

पानी को लगा चाँद उसके अन्दर हैं,
पत्थर ने प्रतिबिम्ब बेध कर सच प्रदर्शाया
चाँद को सितारों के साथ चलना हैं !
पानी को पत्थर के साथ बहना हैं !
प्रतिबिम्ब = reflection

आगे बढ़ने के ख्यालों में,
सपने पीछे छूट गयें !
ऊँचे उठने की दौड़ में ,
दोस्त नीचें छूट गयें !

Adios
-Anuj Lakhotia

Searching for the Reason Obama got Nobel Peace Prize

The deadline for nomination of the Nobel Peace Prize was February 1 when President Obama had been in office for only two weeks.Obama was chosen among 205 nominees in 2009. The other names will be known only after 50 years.

There are no real achievements to showcase currently but there is a strong intention, strong anti-Bush thinking in key areas, a world vision and several efforts to solve current problems the United States.

The prize is a symbol of motivation for his leadership, what he wants to achieve and his thoughts for a new global order. I could not find any strong reasons but happend to land on this speech of his in Cairo

http://www.nytimes.com/2009/06/04/us/politics/04obama.text.html

I wish Obama makes proud the Nobel Peace prize

aaj dil udaas hain

आज दिल उदास हैं,
न जाने किस की आस हैं
jack daniels तुम्हारी class हैं
पीकर उसे भी ज़िंदा यह प्यास हैं !

सोचा था तुमने,
दोस्तों का साथ होगा,
यह सफ़र खुश-गवार होगा
मुहब्बत में इकरार होगा,
तुम्हारा भी एक मुकाम होगा !

पर आज,
दर्द में सीना हैं,
सोचना हैं क्यों जीना हैं
आँखों में अँधेरा हैं,
इस रात का क्या कोई सवेरा हैं ?

क्यों सोचता हैं दिमाग
की पतंग की डोर कट गयी (emphasis)
एक बेवफा के इनकार से
तुम्हारी मुहब्बत की शमा बुझ गयी !

इस महफिल को अपनी हंसी से सजाओं,
दिल में एक तरंग बजाओं,
अपनी आसमान सी सूनी ज़िन्दगी में
तुम 'चाँद' और 'सितारे' लाओ!

जब दिल होता हैं उदास,
होती है उसे
इक तमन्ना की तलाश,
jack daniels हैं तुम्हारी क्लास,
दो peg के बाद
रहता नहीं कोई निराश,
मंजिल है तुम्हारी बहुत पास,
पूछ लो किसी हसीं साकी से
क्या बुझायेगी तुम्हारे मन की प्यास ?


These lines have been written for a friend from IIM Lucknow Navneet Arora, dedicated to his Google talk status message on 7th October 2009

Adios,
Anuj Lakhotia

Cheers

(Chorus)
La la la
la la la
La la la la (a lil faster than other three lines)
la la la

Cheers mate
Cheers mate
The table goes
Cheers mate

La la la
la la la
La la la la
la la la

This gives life
Takes the pain
Drinking never
goes in vain

La la la
la la la
La la la la
la la la

Friendships blossom
People droll
Soul sings with
Rock n Roll

(louder)
La la la
la la la
La la la la
la la la

Love the beats
Love the bar
Love your beer
In the jar

La la la
la la la
La la la la
la la la

Rock the dance
Enjoy the talk
Do not drive back
U'l Luv da walk

La la la
la la la
La la la la
la la la

Friendships blossom
People droll
Soul sings with
Rock n Roll

(stretched)
La la la
la la la
La la la la
la la la


Adios
-Anuj Lakhotia

Few words from Last Pages of Am-Be-Yeah !

They and the grey car were crossing the Lucknow 16km milepost. It was an  exhilarating night for both of them. They had decided to check out the end of  the road after the ' only non veg starters, dessert and Red Label' dinner at  Barbeque Nation,Lucknow. The road had taken them through villages,unknown nooks and corners, uninhabited patches towards Kanpur. 90 km was the writing on the first overhead blue panel across the width of the road.

The fleeting grey Maruti resuscitated the spirit of the biker Bharat Satija to make the digital speedometer display the three digit mark again. The car raced ahead , the red lights changing intensity for the pillion as they played a catch-me -if-you -can game. The bike swerved sharply behind the car across the turn with an Abhishek Bachchan hoarding. 'An IDEA can change your life' ,it read . Very true for the two of them. 2 years back they had taken the plunge to do their MBA. Today was the culmination of it all - they had written their last examination in the noon. "It is a great day." he had said to Bharat in the morning and had added "Need to be celebrated in a special way". A big acknowledging smile is what he had received back.

 The bike had left many a vehicles behind to conquer the road and then felt a no-one-to-chase void. This car driver was different, skilled,maneuvring through the trucks fast. The night sky looked brilliant. The stars shone brightly above the 'stars' tonight. The ever indolent Bharat was dreaming about 'a scrambled egg and beer'  holiday in Goa. And then the digital display went from 108 to 26 in split-seconds.The car raced far away as the bike slowed behind a disobliging trailer truck. 'Stil there, stil alive . Can't be dead before I see  Malaysia' shouted the pillion,as they laughed. 

It had been a bit of chase now. The hands rolled over the race and the wind started enjoying its touch with the jacket again.A blue overhead panel read "Lucknow Zila Panchayat welcomes you".The biker raised his right fist to the imaginary chequered flag and the sexy babes in red as the pillion waved a bye to the grey car.