Long before catered lunches, embroidered Patagonias, and 99% covered healthcare premiums, stock options entered the scene.
In fact, stock options for employees can be traced all the way back to the mid -1970s. Though you would never know it with how misunderstood they are.
Before the Dot-Com Boom, most startups would IPO in 6-8 years. A few names you may know were even quicker.
Amazon: Raised an $8M total Series A in 1996
Founded: 1994, IPO: 1997
Google: Raised $36.1M over 4 funding rounds
Founded: 1998, IPO: 2004
Salesforce: Raised $65.4M over 6 funding rounds
Founded 1999, IPO: 2004
You may also notice that the total amount of funding raised by these companies is nothing compared to today’s standards. Pave, for one, has already raised more venture money than Google did.
Translated: you must stay at least 1 year to play the game at all, and in order to have all your chips, you must stick it out for 4.
With some of the IPOs we looked at above, this made quite a bit of sense. Stick around long enough to play the game, and you might be on the heels of the next IPO.
Still today - by a long shot - this is usually what the fine print of your lotto ticket reads. And so, an employee signs on the dotted line for a chance at the next big startup.
In a look at the 16 SaaS IPOs of 2020, the median time from founding to IPO was 13 years. Yes, 13.
Next Translation: The 4 year vest will not incentivize your employees to stick around for 13 years - or anywhere close.
So how are companies keeping people around given the new circumstances?
So assuming you want to keep your people around for more than 4 years, you may want to [heavily] consider additional equity grants.
A few common strategies:
There is no perfect approach, only considerations to make:
As we’ve all begun to observe The Great Resignation of 2021, savvy teams have given retention strategies a fresh look. Very often, equity refreshes are part of that equation.
But the impact of equity refresh grants doesn’t stop there.
Candidates are starting to ask about equity refreshes. They’re seen as an additional benefit and a longer term incentive. So they can also serve as a helpful recruiting tool.
Again - be thoughtful. And be consistent. Don’t wait to establish a strategy until you’ve felt the effects of not having one.
Oh, and if you’re struggling to figure out how to roll this sort of thing out in spreadsheets, you may want to check out Pave.