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

The Atomic 60 stock options framework works along 6 dimensions.
When you start to design a stock options strategy as a founder,
you should consider the following 6 dimensions of your stock options policy.
1. Why?
2. Who?
3. How many?
4. What price?
5. What conditions?
6. How often?
Sometimes a few of these dimensions can act like forces that run in opposite directions.
As a founder, you need to find the right balance of these dimensions for your startup.
The balance that you find need not be the same as a very good friend startup that operates next door,
or another startup that was recently successful.
Don't imitate others.
Your own stock options design will flow from your values and vision.
That is what gives it authenticity.
That is what makes it your stock options strategy.
Let us look at each of the 6 dimensions in detail.
And as we do that, please make a lot of notes and take time out to think about them.
1. Why?
The why dimension expects a few to define the objectives of your stock options strategy.
You can consider two objectives.
Would you like to reward your team for their past efforts?
Or would you like to reward them for their future contribution?
Depending upon your objective, the design of your scheme would be different.
While in most cases you look ahead and create a scheme for the future,
in some cases however you might have to consider the past.
If you are a startup that has been in existence for some time now,
and you believe that the team has already created value for which they have not been rewarded appropriately,
you could have past reward as an objective as well.
You could have also verbally promised them stock options when they joined,
but you all were just too busy working so it did not happen then.
You might want to make up for the lost time.
Another reason for considering the past.
Or you may not have promised anything in the past,
but you feel that they stuck with you through trying times
and a past reward feels like the right thing to do.
Do not ignore that feeling.
Honor it.
You should now already see why your scheme might have a different flavor
compared to your friend's stock options scheme.
It must.
If however you are a fairly new setup or you believe that they have been compensated adequately in the past,
you need not consider any past reward in the form of stock options.
That is perfectly fine too.
For convenience, we have created a separate category of stock options for past reward.
These are called grassiest options.
They usually are more favorable in their grand price or resting terms.
Next under why.
Whether you feel the need to reward them for the past or not,
you would most likely want to reward them for their future contribution with the company.
Most stock options schemes are designed for this purpose.
We have created a category called growth options for this purpose.
This way you can easily distinguish between the two objectives
and target the options accordingly.
Why have we created two separate categories?
Why not just bunch them up together?
Why not just add a few more options to the growth category and be done with it?
There are two key reasons to do so.
One, setting clear expectations is very important in such relationships.
Doing the right thing to clear your conscience is sometimes not enough.
You also need to communicate it clearly.
By demarcating grassiest and growth options separately and by giving them out,
using two distinct sets of letters and other documentation,
you clearly set the grassiest objectives as a one-time reward for the past.
It is sometimes important to make it clear that this is one-time only
so that the older team members do not continue to expect extra reward in the future.
You might be at the cusp of growth where new people are about to join
and your challenges now might be different.
You can use a one-time grassiest grant to clearly say to the early joinees,
we are so grateful to you for being with us.
Here are grassiest options for your past contribution.
Now on, you can consider yourself to be on par with the ones who will join us in the future.
Many of you and the ones who join in the future will be eligible to get growth options
for future contribution.
But the ones who join after today will not receive any grassiest options.
Those were only for you.
So clear messaging and setting expectations clearly in their mind is very important.
Bunching up the grant into a single grant does not do that very effectively.
2.
You might want to grant the grassiest options at more favorable terms,
for instance a lower price or with a shorter vesting period.
This could be because it is the right thing to do.
Perhaps you promised them these options three years ago but were too busy to grant them.
It might be unfair to grant these options to them now at the current valuation.
Similarly, it might seem unfair to ask them to wait for another few years for grassiest options to vest.
You might want to vest them earlier.
Since you might believe they have in a way already served this so-called vesting period
by being with the company for the past few years.
Different terms means you would also need to create a separate grassiest scheme.
So two things under the wide image.
Do you wish to reward them for the past or for the future or both?
Gracious options or growth options or both?