Employee consideration for a liquidity event

Bear on thing in mind:

You can fix a lot of things in equity later before you sell — if you are still in charge. So you can always grant more equity to someone that outperforms, is promoted, etc. on your watch.

But you can fix very few things during (or even just before) most acquisitions. There are exceptions — for example, SAP allowed Ryan Smith of Qualtrics to distribute $500m of proceeds as he saw fit. But this is rare. Almost always, compensation distributions are fixed the moment you sign a term sheet to be acquired (and really, a bit before that).

You can try and fix a few things around the edges. You can give some of your own consideration to others (I did that both times). For any retention payments, you can try to influence who gets what. But this only goes so far.

So my “rule” is when you give someone an equity grant, make sure it’s enough if you are acquired in the next 24 months. If it is, then a top up later is all good. If not, maybe more shares now makes more sense.

In each acquisition I’ve been through, there have always been a few folks where I got this wrong. Not most, but a few. They were late bloomers — they ended up being much more critical to the org than the initial role they were hired for. I tried to fix it, but I couldn’t do enough. It was too late. I failed them.

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Published on July 22, 2019

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