This guide is meant to help you understand the piece of The Org that you’re going to own! Its goal is to be more straightforward than the full Equity Incentive Plan, which goes into the full legal details. This content should not be taken as advice, and you should consult a tax advisor, financial advisor, or employment attorney and consider the personal tax implications if you have any questions about navigating your stock options before you make important decisions.
You can view information in Carta (access is generally granted within ~3 months of joining The Org) about the specifics of your shares.
Anyone is always welcome to ask Christian or Marica any questions they have about their options, The Org’s fundraising, or anything else related to equity at The Org.
Owning stock in The Org gives you a stake in our success. As The Org grows and increases in value, you will own a piece of that growth through the equity portion of your compensation. Though The Org is relatively small today, if things go well, your stock could be worth many times more. However, you are gambling with this portion of your compensation – if The Org decreases in value, it is highly probable your options will follow suit.
At The Org, we offer equity grants in the form of Incentive Stock Options (ISOs) for US employees and Non-Statutory Stock Options (NSOs) for DK employees. It’s called an option because you have the option to buy The Org stock later at the same price it was worth when the option was granted. So if the exercise price (also called the “strike price”) of The Org stock is worth $1 today and we grow so it’s worth $20 in a few years, you’ll still be able to buy it for $1 (and then sell it immediately for a profit of $19 (subject to tax implications based on your specific tax position).
The reason we give stock options instead of straight stock is that it keeps you from being taxed on the stock until you actually use it.
If we gave you $10,000 worth of The Org stock today, you would have to pay thousands of dollars in taxes this year. If we give you option to buy $10,000 worth of stock, you don’t have to pay any taxes until you exercise and/or sell them (more on exercising later).
Instead of giving you all of your options on day one, you get them over time. This process is called a vesting schedule and different companies offer vesting schedules of different lengths depending on a number of factors including the purpose and intention of the Equity Incentive Plan, the maturity of the company, previous Equity incentive Plans, etc.
At The Org, stock vests over 4 years with a 1 year cliff.
For The Org ISO and NSO holders, vesting occurs on a monthly basis (so you vest 1/48 of your options each month).
A cliff is a period at the beginning of the vesting period where your equity does not vest monthly, but instead vests at the end. At most companies, including The Org, this cliff happens at year 1 (see image below). This means that if you leave your job before you’ve worked for a whole year, none of your options will be vested. At the end of that year, you’ll vest the entire year’s worth of equity all at once and then your remaining options will vest on a monthly basis as noted above. This helps keep the ownership of The Org stock to folks who have worked at the company for a meaningful amount of time.
When The Org raises money from outside investors, it needs to create new stock to sell those investors. You will own the same number of shares as you did before, but there will be more total shares of The Org available, so you will own a smaller percent of the company – this is called dilution.
If we get a fair valuation for the company, then the value of your options stays the same when we raise outside money because the company’s new valuation will be equal to the old value of the company + the new capital raised. For example, if The Org is worth $20m and we raise $5m, we are now worth $25m. If you owned 5% of $20m before, you now own 4% of $25m (we sold 20% of the company, or, said differently, diluted you by 20%). The 5% stake was worth $1m before the fundraise and the 4% stake is still worth $1m.
You can also be diluted as we give equity to employees. The Org gives stock option grants to new employees out of an option pool, or a group of options that the The Org board of directors creates all at once. This means that you will not be diluted each time we hire a new employee, but only when we need to create a new option pool. For some high-level executive hires, the board might approve stock option grants outside of the equity pool. In both cases, the hope is that employees add more value to the company than the equity they receive.
The valuation of the company directly affects the value of your stock. Valuations (how much a company is worth) in private markets can be highly unpredictable and subjective. Competition between investors, general market performance, perceived future value, and our negotiation skills all play into that valuation and the value of your options will be affected by those forces at this stage of the company. As we mature, the company will more often be valued using a variety of methods with assumptions to determine what the future cashflows of the business will be. This process can be more objective or ‘cut and dry’ but still has some level of subjectivity and assumption.