Allocating Stocks: Five Common Mistakes
Being aware of these possible pitfalls will help you hang on to the money you'll need as your business expands
This article is for subscribers only.
The success of your business depends in large part on having enough money to keep it financed as it expands. Too many startups get tripped up by ineffective stock option plans. Here are some common mistakes and ways to avoid them.
1. Not setting up a big enough option pool. This is often where the trouble begins. Most startups will be fine allocating 20% of their stock as a pool for employee options. But if a startup is "raw" (meaning it needs to hire top talent in all areas), it had better allocate 25% to 30%. Make sure you work with your startup-savvy attorney to allocate enough shares in your option pool. And remember, you'll need to allocate more with each financing round.