Founders, are you offering employee stock options?

Joshua Kevin is a former community manager for KakaoTalk Indonesia and blogger for Tech in Asia. He is now working on Bridge Inc, helping startups in the Indonesian market.

This post about share dilution by Tokobagus founder Remco Lupker attracted my attention a while back, and although it took quite some time for me to write this post, I think it is worth discussing.

We all know that everyone wants to build their own startup; everyone wants to create the next billion dollar company. But what about working for one? What about the employees? I think this topic concerns many founders: stock options.

With more than a few startups emerging in the past three years, I wonder how many actually set aside an employee stock option pool. Will it only happen when you get funding? Or do most founders just not mention it unless their employees ask?

This is important both for the startup and the ecosystem as a whole. The main attraction of working in a startup is, of course, the company vision and how it will grow the individuals working there. Yet, at the same time, most startups can’t offer paychecks as big as multi-national companies. This leaves stock options, where (early) employees will be given X percentage of the company. When an employee owns part of what they are working on, they will grow together with the company. At the very end, they can profit from the long years of hard work when the exit comes – just like the founders.

Why is it important for the ecosystem?

It attracts talent: stock options can be pitched as a substitute to a bigger paycheck at a corporate job. Potential employees may need to be educated, though — many students and entry-level applicants won’t really understand how stock options work.

It helps with motivation: yes, some people might say that if you work for startup, you’re not in it for the money but for the journey. But with stock options, you have direct ownership of the company, and that will motivate you to do more and push yourself harder so the startup will grow bigger.

It can create a trickle-down effect: You have some examples in Silicon Valley: the PayPal mafia, the Facebook mafia, etc. Once a company earns a huge valuation exit, those (early) employees who have stock options can then create another startup with the money they make.

This leads me to my final question: how many startups are actually setting aside employee stock options pool from the start? I believe many companies funded by VCs are actually required to do so. I would love to get feedback on this.

(Editing by Paul Bischoff)