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How many stock options should executives at a startup company be granted? November 28, 2010

Posted by HubTechInsider in Acquisitions, Boston Executive Moves, Investing, IPOs, Staffing & Recruiting, Startups, Venture Capital.
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How many stock options should executives at a startup company be granted?

The Going Rates for Senior Executives’ Stock Options in the Boston area, 2011:

A President or CEO of a startup may typically receive anywhere from 6% to 10% of the company’s stock. The actual percentage of stock granted to the CEO will depend upon such factors as the company’s life stage and financial stability and revenue outlook when the new CEO signs on for employment. The earlier in the company’s formationary period the new CEO signs on, the higher the percentage of stock granted to him may be.

A Senior Vice President of a startup may typically receive anywhere from 1% to 3% of the startup’s stock. In general, and this is across many industries that startups participate in in the Boston area, those with a marketing and sales pedigree are rewarded toward the higher range and those with a financial orientation toward the lower range. This is often due to the fact that very top-notch marketing and sales executives are sinmply harder to find because of intense competition in the Boston area, and when they succeed, they add signigficantly to the bottom line of a startup company’s revenue outlook. In contrast, consider that senior Financial executives are essential to reassure skitish venture, angel and other early stage startup capital funding institutional and individual investors, but they can’t usually stake a claim to having increased sales.

A Vice President or a Key Manager of a startup company in the Boston area may expect to receive (or in the Boston area, may expect to have had to have negociated strongly for) .5% to 2% of a startup company’s stock. A Vice President of sales or a manager of technolgy would be liklier to command toward the higher end of this range of stock percentages, while a Vice President of finance or manufacturing would probably be at the lower end. As I outlined above with Senior Vice Presidents, those with marketing and sales expertise have the greatest amount of leverage. Executives and managers below these senior levels usually receive something less than .5% of the startup’s stock in the Boston area.

I should point out with some stridency that the above stock percentages that I have outlined can be misleading, and I advise starup senior management teams, hr directors, boards of directors, investors, and job seekers to take the above guidelines with care. In the Boston area, a great deal of savvy negociations by knowledgable parties, all armed with a great deal of stock option terminology and business experience, would have to be conducted to arrive at stock option structures like the ones above.

The actual percentage of a startup company that an employee receives in options is much less important than its potential value. Having 10% of a company that’s unlikely to exceed $1 million in value is much less desirable than having 1% of a company that has a good chance of being worth $100 million.

Want to know more?

You’re reading Boston’s Hub Tech Insider, a blog stuffed with years of articles about Boston technology startups and venture capital-backed companies,software development, Agile project management, managing software teams, designing web-based business applications, running successful software development projects, ecommerce and telecommunications.

About the author.

I’m Paul Seibert, Editor of Boston’s Hub Tech Insider, a Boston focused technology blog. I have been working in the software engineering and ecommerce industries for over fifteen years. My interests include electronics, robotics and programmable microcontrollers, and I am an avid outdoorsman and guitar player. You can connect with me on LinkedIn, follow me on Twitter, even friend me on Facebook if you’re cool.

I own and am trying to sell a dual-zoned, residential & commercial Office Building in Natick, MA. I have a background in entrepreneurship, ecommerce, telecommunications and software development, I’m the Director, Technical Projects at eSpendWise, I’m a serial entrepreneur and the co-founder of Tshirtnow.net.



Web Innovators Group 28 (WebInno28) – Five Year Anniversary: Monday, November 29, 2010 at 6:30 PM (ET) — FREE November 22, 2010

Posted by HubTechInsider in Conferences, events, Investing, IPOs, Startups, Venture Capital.
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Web Innovators Group 28 (WebInno28) – Five Year Anniversary: Monday, November 29, 2010 at 6:30 PM (ET) — FREE

WebInno is an informal gathering of people interested in internet and mobile innovation – open and FREE to all in the community.

This WebInno is special, as we’re celebrating the fifth anniversary of the event. We’ll both take a look back at the past five years and ahead to next five. Join the entire community in gathering around innovation in the entrepreneurial web ecosystem.

We begin with the doors officially opening at 6:30pm in the Cambridge Royal Sonesta Hotel. At 7pm in the Grand Ballroom we’ll hold our usual format of self-/angel-funded startups demo’ing to the audience in Main Dish showcases, and select an “Audience Choice” winner of the crowd’s favorite. During the entire evening’s event, Side Dish startup companies will provide informal demonstrations to the networking crowd from the Skyline Suites room.

(presenting at 7pm):

FanSwarm (Ayeah Games) – Doug Levin
HowAboutWe – Brian Schechter

Moontoast – Blair Heavey & Marcus Whitney

(demo’ing throughout the evening):

Ginger Software – Miki Feldman-Simon

My-Take – Rich Armstrong & Todd Hoskins

Penmia – Puneet Gangal

SocialSci – Leon Noel

Smashion – Daniel Ruan

Promoboxx – Ben Carcio & Dan Koziak

Woopid – Lester Rosensaft & Craig James

Monday, November 29, 2010 at 6:30 PM (ET)

Royal Sonesta Cambridge
40 Edwin H Land Blvd
Cambridge, MA 02142

Web Innovators Group
The Web Innovators Group (WebInno) is comprised of people engaged in internet and mobile innovation in the Boston area. We aim to support entrepreneurs, visionaries, and creative thinkers in the field by holding events which foster community interaction.
Our regular meetings provide a forum for entrepreneurs from self-funded/early-stage startups to present new services to their peers, as well as an opportunity for everyone in the community to share and exchange ideas.

WebInno was founded and is currently led by David Beisel of NextView Ventures.

What’s the difference between incentive stock options (ISOs), nonqualified stock options (NSOs), and Restricted Stock? May 27, 2010

Posted by HubTechInsider in Boston Executive Moves, Definitions, Investing, IPOs, Management, Staffing & Recruiting, Startups, Venture Capital.
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What is the difference between the types of stock options? How many different kinds of stock options are there?

I am often asked questions about negociating stock options as part of a Boston high tech or IT job compensation package for an executive or management position. I am a successful entrepreneur and businessman who has handed out and received stock options. I have found to my surprise that prospective employees that I have spoken with regarding this topic leave me with the distinct impression that they have sat through job interviews listening to a company executive or recruiter talk about subjects such as “incentive and nonqualified stock options”, “vesting periods”, “strike price”, and “dilution”, nodding their heads in mute agreement, as if they understood everything.

First off, if you are serious about assessing equity incentives, and stock options in particular, you need to familiarize yourself with the lingo. I have included the Hub Tech Insider’s Glossary of Stock Options Terminology below, at the conclusion of this article. If you want to know the difference between incentive stock options (ISOs), nonqualified stock options (NSOs), and Restricted Stock, then I will attempt to shed some light on the confusion by writing about the different types of stock options.

Incentive Stock Options qualify for preferential tax treatment – the key preference being that the recipient can delay paying taxes on stock acquired by excercising the option until the stock is actually sold. If the recipient sells the stock right away, any gain is treated as ordinary income, which gets taxed at the same rate as your salary; but if the stock is held for a year, any gain qualifies as a capital gain, which is taxed at a maximum of 20%.

It is important to note that incentive stock options can only be granted to employees (as opposed to consultants or other contractors). Nonqualified options can be handed out to consultants, contractors, outside directors, and anyone else the company wants, but the recipient pays taxes on the difference between the excercise price of the option and the value of the shares as ordinary income as soon as the shares are acquired, rather than when the shares are sold. That means the recipient may wind up paying taxes before receiving any money.

Restricted stock can best be thought of as a mirror image of incentive stock options. Instead of being made available for purchase over a period of time, as incentive stock options are, restricted stock is given out all at once when an individual joins a company, usually with the restriction that it be sold or given back to the company if the employee leaves the company before a certain period of time has gone by. The reason more companies are making restricted stock available to certain senior executives is that it offers a potential tax advantage: because executives get their hands on the stock as soon as they join the company, they have a god shot at fulfilling the one-year holding period necessary to qualify for capital gains treatment on any profits from the eventual sale of the stock. Given how fast some companies are going public or are acquired, the capital gains treatment can result in significant tax savings.

The Hub Tech Insider Glossary of Stock Option Terminology:

Above Water – Options allowing the purchase of shares of stock for less than the market price are said to be “above water”.

Authorized Shares – The number of shares of stock available for a company to issue.

Bearish – Having a negative opinion about the future of the stock market.

Bullish – Having a positive opinion about the future of the stock market.

Capital Gains – The profit gained from the sale of an investment, such as stock, which is taxed at lower rates than ordinary income.

Cashless Exercise – Allows an individual to temporarily borrow the money needed to excercise options by selling some of his/her stock in order to cover the cost of the remaining shares.

Cliff Vesting – Allows option holders to excercise some or all of their options at once, such as after the first year of employment, instead of incrementally over a period of several quarters or years. (See Vesting Period)

Equity – Common stock in a company.

Exercise – The act of acquiring stock promised by an option.

Exercise Price – The price at which an option holder may buy shares of stock. Often referred to as the strike price.

Expire – Options are typically granted for a definite period of time. If individuals do not excercise the options before a specified date, they expire (meaning they are forfeited).

Forfeit – Employees forfeit or forego their right to exercise their options by leaving a company before all the options have vested – or by not exercising them before their date of expiration because they are “under water”.

Founders Stock – Shares in a company held by the initial founders, usually subject to certain restrictions as to their disposition.

Fully Diluted Capitalization – The total number of shares outstanding or set aside for issuance (such as shares in a stock option plan).

Immediate Vesting – When one company has been bought by another, all options that have been issued by the acquired company are automatically available for immediate excercising, or vesting.

Incentive Stock Options (ISOs) – ISOs can only be granted to employees, as opposed to outside consultants or contractors. Their advantage is in allowing holders to acquire stock without paying taxes on their gain in value until they sell the stock.

Incremental Vesting – Period of time during which options become vested gradually, such as quarterly, which is specified in an option agreement. Such vesting is also referred to as vesting on an incremental basis.

Initial Public Offering (IPO) – An IPO is a company’s first sale of stock to the public.

Insider – An insider is any officer, director, advisor, or investor of a company that is public or about to go public. Because of his or her inside knowledge of a company’s financial plans, an insider is restricted in trading the company’s stock based on information not disclosed to the public.

Liquidity – How easily an investment holding can be converted into cash. Shares of stock are liquid if there is a ready market for those shares, meaning that the shares are available to be bought and sold. If a company is privately held, the stock is sai to be illiquid.

Lockup Period – A period of time that insiders of a company are required by an underwriter to hold onto shares of stock gained from exercising options before being allowed to sell. Once individuals exercise options, they may not sell these shares for the entire lockup period, often one year.

Long-term capital gains – Profits from an investment held longer than one year. These gains are subject to tax rates that can be as high as 20%.

Nonqualified Stock Options (NSOs) – NSOs can be granted to anyone (employees, outside consultants, contractors, directors, and others). However, the receipient pays taxes on the difference between the price of the options and the value of the shares as soon as the shares are acquired, rather than when the shares are sold.

Offering Statement – A statement prepared by the underwriters and distributed to potential investors before a company goes public.

Option Agreement Letter – Document given by a company to an employee to legally grant options.

Option Grants – The number of shares a recipient can acquire via options.

Ordinary Income – Income subject to regular income tax rates, such as salary.

Par Value – The monetary value shown on a security.

Phantom Stock – Can be converted into real stock at some point in the future when certain predetermined events occur. Often referred to in the context of executive bonus plans tied to increases in a public company’s share price.

Preferred Stock – A class of stock that has advantages over common stock in the event of a sale or liquidation of the company.

Privately Held – A company that is owned by one or several individuals or institutions but not by the “public”. Shares of privately-held companies are said to be illiquid.

Publicly Held – A company is considered publicly held – or owned by the public – if its shares are traded on a public stock exchange (like the New York Stock Exchange or NASDAQ). A company can be publicly held even if the majority of its shares are still owned by the company’s original founders and investors.

Registration Statement – A statement required by the SEC in order for a company to conduct an IPO.

Repricing Options – When companies, usually publicly held, adjust the prices on stock options lower in consideration of a decline in their share prices that may place their employees’ stock options ‘under water’. Companies shy away from this practice because it means incurring an accounting charge against profits.

Restricted Stock – Stock available for purchase immediately upon joining a company, but subject to vesting and other conditions.

Securities and Exchange Commission (SEC) – The federal agency charged with ensuring that the investing public has access to all of the relevant and materail information about every public company traded on a US market.

Shares – Ownership in a company.  Usually referred to as shares of stock.

Shares Authorized – The number of shares of stock that a company is allowed to issue, whether they are outstanding or are held in treasury by the company.

Shares Outstanding – Stock held by investors, as opposed to shares held in the company treasury.

Short-term Capital Gains – Profits from an investment held less than one year. These gains are subject to taxes at regular income tax rates, which often exceed 20%.

Spread – When options are “above water”, the spread is the difference between the grant price and the stock’s market value.

Stock – Equity or ownership ina company commonly referred to as common
stock.

Stock Option Plan – An employee incentive plan that allows employees of a company the option to buy shares of stock in the company at a specified price at some point in the future.

Stock Options – These grant the right, but not the obligation, to buy shares of stock at a specified price within a particular time interval, and with a specific expiration date.

Stock Purchase Plan – A plan to encourage employees to take a personal financial stake in the company by offering shares of stock for purchase at a discount – usually in the range of 10-15% – over their “open market” purchase price.

Stock Split – Companies will often declare a split, often a 2-for-1 split, which will reduce by half the price per share and double the amount of shares outstanding.

Strike Price – The price at which an option holder may buy shares of stock. Often referred to as the exercise price.

Under Water – If an option does not allow the purchase of shares of stock for less than the market price of those shares, the option is said to be “under water”.

Underwriters – Investment bankers who in effect buy a stake in the company and then sell this stake to the public. The underwriter guarantees a minimum price for the sale of the company in return for a premium on the shares sold to the public if demand outstrips supply.

Venture Capital Firms – Investment vehicles funded by wealthy individuals looking to take risky stakes in promising new companies and technologies in return for both control and a share of future profits.

Vesting Period – Period of time during which the option holder is allowed to exercise incrementally more options that have already been granted. Vesting typically occurs over periods of three to five years in corresponding increments of 20% to 30% vested per year.

Warrants – An investment vehicle similar to options, allowing for purchase of stock at a specific price before a particular date or in the future.





Want to know more?

You’re reading Boston’s Hub Tech Insider, a blog stuffed with years of articles about Boston technology startups and venture capital-backed companies, software development, Agile project management, managing software teams, designing web-based business applications, running successful software development projects, ecommerce and telecommunications.

About the author.

I’m Paul Seibert, Editor of Boston’s Hub Tech Insider, a Boston focused technology blog. You can connect with me on LinkedIn, follow me on Twitter, even friend me on Facebook if you’re cool. I own and am trying to sell a dual-zoned, residential & commercial Office Building in Natick, MA. I have a background in entrepreneurship, ecommerce, telecommunications and software development, I’m the Senior Technical Project Manager at eSpendWise, I’m a serial entrepreneur and the co-founder of Tshirtnow.net.

LA’s Magneto Software, Open Source Ecommerce Platform Powerhouse, Raises $22.5 Million and gets ready to kick sand in kümmerlich Demandware’s face March 22, 2010

Posted by HubTechInsider in Cloud Computing, Ecommerce, Investing, IPOs, Software, Startups, Venture Capital.
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You’ve read here before about the grimmig shape Woburn’s (and Deutschland’s) tiny non-IPO’ing Demandware looks to be in right about now. Well, things are looking even worse for the durchfallend company today, as Los Angeles-based Open Source Ecommerce Platform Powerhouse Magneto Software has announced they have raised $22.5 Million Green American Dollars from a group of undisclosed investors, and their armies are on the march. The never-humble, always self-serving Demandware founder, Stephan Schambach, no doubt reeling from his company’s dimming IPO hopes and shrinking client base, has recently been picking a series of kindlich fights with the American company with a tutonic bluster that would have made Field Marshall Von Kesselring blush. As usual, Demandware has trotted out an endless series of their own marketing and PR flaks to churn out schadenfreude “press releases” denying that they are caught in an Open Source Crossfire reminiscent of the Kessel at Stalingrad. Even Demandware’s Ulrike Müller, “Chief Software Architect” (of Germanic dinosaur J2ee code bloat?) has chimed in with a completely unbiased bit of ranting. Now LA’s Magneto (taking the metaphor further) has scored a major victory with an enourmous $22.5 Million dar Bozhii, or “gift from God,” of an investment from a group of undisclosed investors, which they will undoubtedly use to beat Demandware over the head with. It’s put up or shut up time, Schlaubergern!


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Attleboro’s Sensata Technologies, a sensor and controls maker, readies a $726 Million IPO March 8, 2010

Posted by HubTechInsider in Hardware, IPOs, Microprocessors, Startups, Venture Capital.
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Attleboro’s Sensata Technologies, a sensor and controls maker, readies a $726 Million IPO on the NYSE (New York Stock Exchange symbol–ST) underwritten by Morgan Stanley, Barclays Capital, Goldman, Sachs & Co, BofA Merrill Lynch, J.P. Morgan, Citigroup, and Credit Suisse.

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Mass Innovation Night Tonight at Waltham’s IBM Innovation Center at 6:30pm — FREE! February 17, 2010

Posted by HubTechInsider in events, Investing, IPOs, Startups, Technology, Venture Capital.
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Massachusetts Innovation Night tonight at Waltham’s (MA) IBM Innovation Center, 404 Wyman Street. Companies launching include: Alphasoftware, Hubcast, Kaon Interactive, Onstate, Scallop Imaging and VisibleGains. Meet author Steve Garfield and experts from 406 Ventures, Brainshark and Jetty Marketing. Starts at 6:30pm. Park in North Garage. FREE!

Framingham’s Glasshouse Technologies readies a $75 Million IPO February 5, 2010

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Framingham’s Glasshouse Technologies, a provider of storage consulting and services,
readies a $75 Million IPO on the New York Stock Exchange, principally underwritten by Goldman Sachs and Credit Suisse.


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Attleboro’s Sensata Technologies, a sensors and controls company, preps a $500 Million IPO November 30, 2009

Posted by HubTechInsider in Hardware, IPOs, Manufacturing, Microprocessors, Venture Capital.
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Attleboro, Massachusetts based Sensata Technologies, a sensors and controls company with approximately $797 Million in revenues, is preparing a $500 Million IPO, to be underwritten by Morgan Stanley, Barclays Capital, and Goldman Sachs. The NYSE stock symbol for the company has not been disclosed as of yet.

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