Stock Purchases vs. Stock Options vs. Stock Grants

Issuing stock to founders, employees, contractors, and advisors is the primary way to compensate a startup’s team when there’s little to no revenue coming in to pay salaries. That said, it can sometimes be necessary for you to explain that the value in being a shareholder doesn’t come from the value when issued, but from the value when their stock is sold – the potential of a huge payday when a stock’s value skyrockets at an exit can help attract and retain talent. 

There are many ways to issue stock, and the methods and restrictions that can be put in place may sound confusing. Read on to learn about the most common ways startups get equity into the hands of founders, advisors, contractors, and employees, and how to keep each one of these people honest and committed to the success of the startup. 

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How Should I Raise Venture Capital and Stay Out of Legal Hot Water: The Do’s and Don’ts of asking people for money

You might not be sure where to start when attempting to raise venture capital. Your questions may include “Can I ask anyone for money?” “Can I advertise that I am looking for VC funding on social media?” “How do I ask?” “Are there any rules?” “Is it OK to ask my friends and family?” Not knowing the answers to these questions can be detrimental if you start accepting money before getting answers.

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How Much Equity Do I Give to Employees, Advisors, and Contractors?

You may remember being on the receiving end of an equity grant at some point in your career and thinking about whether it was fair compensation for your services. You may even have questioned some of the details, such as the amount, vesting, or other terms of the grant when you received it, declaring it to be disproportionate to the value you brought to the company. Whatever your experience has been with equity grants, it can be an important currency in the growth of your startup that you must manage wisely as the founder(s). You will want to consider these very same questions that your own employees, advisors, and contractors may be thinking. Most importantly, you need to decide how much of your company you are willing to give to incentivize them.

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