How to create a successful ESOP plan for your early-stage startup
This blog covers essential decision-making frameworks that can help founders design a successful ESOP plan.
Rohan works with a portfolio of early-stage SaaS and Consumer startups, supporting them in areas spanning go-to-market strategies, capital fundraising, and strategic partnerships. Prior to joining Antler, Rohan was at xto10x, Binny Bansal's startup scaling platform, where he led initiatives focused on growth and market strategies. He was one of the founding members at Lynk Global, a SaaS expert network startup, in their India office. Subsequently, he extended the company's reach to North America, establishing offices in New York and Toronto.
October 25, 2023
Share this post
In the ever-evolving landscape of startups, founders in the early stages (typically from pre-seed to Series A) are often faced with the challenge of effectively utilizing ESOP to attract top talent who typically have astronomical offers from late-stage startups. The core challenge is to strike the right balance between ESOP (Employee stock ownership plan) and cash compensation. While equity aligns employees with the company's success, it doesn't meet immediate financial needs. Founders must carefully determine the allocation of equity throughout their journey, as too little can deter talent, while excessive allocation can deplete the ESOP pool prematurely, hindering future growth.
Before we proceed, let’s take a minute and understand the basics of an ESOP pool and when is typically the right time to create one. Satheesh KV, former HR Director at Flipkart & co-founder of Spottabl, in a webinar with Trica Equity, said:
“Create the ESOP pool as early as you can. I believe the ESOP pool and associated governance processes should start from Day 1”
It is important to remember that as the market matures and the exposure to equity ownership in early-stage startups furthers in the country, the company’s ESOPs pool size can serve as a powerful signal to attract high-quality talent. Setting aside a 10% ESOP pool or slightly larger,i.e. up to 15% signals generosity and a commitment to wealth creation and shared ownership for employees.
However, creating a successful ESOP plan isn't a linear journey, especially for early-stage startups. It's an art, influenced by various factors. Let's consider a few decision-making frameworks that can help founders design a successful ESOP plan:
It's important to note that there is no one size fits all approach and there are several factors beyond the seniority levels of employees that need to be considered before rolling out employee equity.
Equity allocation is a complex yet critical aspect of building a startup's team. We interviewed several Antler portfolio founders and early-stage people success leaders to learn about what are some of the best practices in arriving at the right quantum of ESOPs for a critical hire. Here are a few of the top ones:
The best practices laid out above are by no means prescriptive. Founders, especially early-stage ones, need to adapt these to their specific company context. By considering things like long-term goals, the kind of company founders are building, and where the founders are in their journey, they can shape a fair ESOP policy that can be truly impactful. This means not just relying on data, but also on stories that show the value of employees owning a piece of the pie from the beginning. The connection between giving employees a stake and their motivation is a big deal, showing that everyone's success is tied together. So, beyond the calculations, it's about creating a sense of partnership, ownership, and shared growth. Ankita Tandon, founder, Infinyte.Club summarizes this well -
“Being a founder means you will inevitably make some hiring mistakes along the way. It's just part of the journey. When you offer equity to your team, you’re not just giving ownership to early employees but you're also creating a window for both you and your employees to assess mutual alignment within that crucial first year.”
Subscribe to our newsletter
Get the latest news and views from Antler’s global community
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Share this post
Must-read articles from Antler
Browse our collection of founder stories, industry insights and latest startup successes from Antler Australia
What are the trends and who are the people defining the future of UK tech? Antler in the UK and Google hosted The UK’s Early-Stage Growth Opportunity, a dynamic event exploring the trends and growth opportunities in UK and European early-stage investing over the next 10 years.
The startup ecosystem in the Middle East, North Africa, and Pakistan (MENAP) is bursting with potential. With a young, tech-savvy, and increasingly urban population of 600 million and governments evaluating ways to diversify and modernize their economies, vast opportunities await founders building in the region. Antler is thrilled to support the next generation of standout founders from across the region—and the world—through the launch of our inaugural residency in Riyadh, Kingdom of Saudi Arabia (KSA). Learn more about the 92 exceptional founders who joined our first cohort.
In a fundraising environment that has been challenging for startups of all stages, how can you set yourself apart from the pack when approaching investors? Antler partner Tyler Norwood, Antler venture partner Robbie Crabtree, and post-investment platform co-founder Mike Preuss discuss the best ways to become a top-decile startup with investors.
The businesses that go the distance are the ones that embed sustainable practices in their operations from day zero. But many founders lack the knowledge and resources to do that. That's why we created our online education platform, the Antler Sustainability Toolkit—exclusively for founders.
The Nordics have produced some of the most successful tech unicorns in Europe—and the world—with Spotify and Klarna securing some of the highest valuations ever achieved by European tech founders. As the tech flywheel spins faster and faster in the region, Antler is excited to publish the largest study of tech founders in the Nordics ever conducted.
As AI technologies evolve at a breathtaking speed, founders have an unprecedented opportunity to leverage those tools to solve complex, meaningful, and pervasive problems. Antler is looking for the next wave of visionary founders committed to using AI to disrupt industries and improve how we live, work, and thrive as individuals, organizations, and economies.
Our Window into Progress digital event series continues with "Under the Hood"—a deep dive into the rigor and scale that makes Antler unique as we source and assess tens of thousands of founders across six continents.