transcripts/10-Atom-6D-stock-options-framework-Part-1.vtt

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The Atomic 60 stock options framework works along 6 dimensions.

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When you start to design a stock options strategy as a founder,

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you should consider the following 6 dimensions of your stock options policy.

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1. Why?

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2. Who?

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3. How many?

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4. What price?

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5. What conditions?

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6. How often?

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Sometimes a few of these dimensions can act like forces that run in opposite directions.

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As a founder, you need to find the right balance of these dimensions for your startup.

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The balance that you find need not be the same as a very good friend startup that operates next door,

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or another startup that was recently successful.

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Don't imitate others.

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Your own stock options design will flow from your values and vision.

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That is what gives it authenticity.

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That is what makes it your stock options strategy.

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Let us look at each of the 6 dimensions in detail.

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And as we do that, please make a lot of notes and take time out to think about them.

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1. Why?

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The why dimension expects a few to define the objectives of your stock options strategy.

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You can consider two objectives.

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Would you like to reward your team for their past efforts?

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Or would you like to reward them for their future contribution?

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Depending upon your objective, the design of your scheme would be different.

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While in most cases you look ahead and create a scheme for the future,

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in some cases however you might have to consider the past.

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If you are a startup that has been in existence for some time now,

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and you believe that the team has already created value for which they have not been rewarded appropriately,

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you could have past reward as an objective as well.

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You could have also verbally promised them stock options when they joined,

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but you all were just too busy working so it did not happen then.

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You might want to make up for the lost time.

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Another reason for considering the past.

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Or you may not have promised anything in the past,

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but you feel that they stuck with you through trying times

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and a past reward feels like the right thing to do.

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Do not ignore that feeling.

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Honor it.

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You should now already see why your scheme might have a different flavor

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compared to your friend's stock options scheme.

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It must.

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If however you are a fairly new setup or you believe that they have been compensated adequately in the past,

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you need not consider any past reward in the form of stock options.

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That is perfectly fine too.

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For convenience, we have created a separate category of stock options for past reward.

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These are called grassiest options.

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They usually are more favorable in their grand price or resting terms.

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Next under why.

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Whether you feel the need to reward them for the past or not,

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you would most likely want to reward them for their future contribution with the company.

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Most stock options schemes are designed for this purpose.

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We have created a category called growth options for this purpose.

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This way you can easily distinguish between the two objectives

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and target the options accordingly.

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Why have we created two separate categories?

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Why not just bunch them up together?

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Why not just add a few more options to the growth category and be done with it?

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There are two key reasons to do so.

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One, setting clear expectations is very important in such relationships.

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Doing the right thing to clear your conscience is sometimes not enough.

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You also need to communicate it clearly.

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By demarcating grassiest and growth options separately and by giving them out,

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using two distinct sets of letters and other documentation,

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you clearly set the grassiest objectives as a one-time reward for the past.

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It is sometimes important to make it clear that this is one-time only

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so that the older team members do not continue to expect extra reward in the future.

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You might be at the cusp of growth where new people are about to join

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and your challenges now might be different.

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You can use a one-time grassiest grant to clearly say to the early joinees,

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we are so grateful to you for being with us.

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Here are grassiest options for your past contribution.

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Now on, you can consider yourself to be on par with the ones who will join us in the future.

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Many of you and the ones who join in the future will be eligible to get growth options

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for future contribution.

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But the ones who join after today will not receive any grassiest options.

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Those were only for you.

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So clear messaging and setting expectations clearly in their mind is very important.

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Bunching up the grant into a single grant does not do that very effectively.

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2.

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You might want to grant the grassiest options at more favorable terms,

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for instance a lower price or with a shorter vesting period.

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This could be because it is the right thing to do.

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Perhaps you promised them these options three years ago but were too busy to grant them.

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It might be unfair to grant these options to them now at the current valuation.

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Similarly, it might seem unfair to ask them to wait for another few years for grassiest options to vest.

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You might want to vest them earlier.

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Since you might believe they have in a way already served this so-called vesting period

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by being with the company for the past few years.

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Different terms means you would also need to create a separate grassiest scheme.

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So two things under the wide image.

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Do you wish to reward them for the past or for the future or both?

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Gracious options or growth options or both?