Let us design a stock option strategy from scratch for a hypothetical education startup.
They are just getting started and plan to develop high-quality digital education content
for schools.
They have two co-founders, Margal and Catherine.
Both of them have been passionate about education for a very long time and wish to contribute
to the education conversation worldwide.
They incorporate a company with 10,000 equity shares to begin with.
Since they both are software engineers, they start to build their education application
together without hiring anyone else just yet.
A few months down the line, with the product built to a reasonable extent, they feel they
need to hire a couple of junior engineers to help them speed up the development, and
very importantly, also someone for sales and marketing.
They plan to sell their product to educational institutions so they need someone experienced
in B2B sales.
They know the digital education domain is quite crowded, but they wish to build a product
that though digital has a unique manner in which the content is delivered.
They also have a separate section for teachers to help them upskill so they can use the content
effectively.
They are not trying to replace the teachers but to train and empower them.
After a lot of deliberation, they agree that the vision of empowering teachers resonates
very strongly with them.
This is their non-financial vision that energizes them to come to work every morning, and they
would like to have such people on the team who are also energized by such a vision.
They also agree that apart from integrity and professionalism, a core value they would
want to have in their team members is warmth and compassion.
The definition of their values and a non-financial vision provides them with clarity in terms
of the kind of people they would like to have on the team.
For instance, they are now clear that someone who is very well connected in the education
ecosystem is experienced in B2B sales, but bears a loud and a slightly domineering attitude
may not be the right fit for the culture they would like to create.
Now they are also not looking for people who merely have their relevant experience or are
passionate about education in general, but those who would be excited about empowering
teachers in particular.
As they begin their search, they are also aware that they cannot afford to pay market
salaries.
Once they find the right people who are inspired by their values, vision and culture, they
would also need to incentivize them financially using stock options.
So they need to note two things.
One, they intended benefit for each such role over four years, and two, their financial
projections to determine how much profit one equity share would provide in four years.
Let us do that next.