This conversation delves into the complexities of equity management within startups, exploring the journey of founders in understanding and implementing employee equity compensation. The discussion highlights the importance of aligning equity incentives with company goals, the challenges of determining fair equity distribution, and the common pitfalls that founders encounter. The speakers emphasize the need for strategic planning around equity pools and grants, as well as the significance of benchmarking and adapting equity strategies to the evolving landscape of startup funding. The conversation concludes with insights into current trends in equity compensation across different regions, underscoring the necessity for founders to be informed and proactive in their approach to equity management.
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Takeaways
Equity management is often overlooked but crucial for startups.
Understanding the purpose of equity compensation can align employee interests with company goals.
Many startups lack a structured plan for equity distribution.
The size of equity pools should be calculated based on company growth projections.
Benchmarking equity compensation is essential but should not overshadow individual company needs.
Common mistakes include not planning for refresher grants and promotions.
Healthy relationships within a company can lead to better equity outcomes.
The landscape of equity compensation is evolving, with varying practices across regions.
Founders should view equity as a valuable resource, not just a cheap alternative to salary.
Education around equity compensation is vital for both founders and employees.
Chapters
00:00 The Evolution of Equity Compensation
01:38 The Role of Equity in Startups
04:18 Challenges in Implementing Equity Strategies
07:02 Investor Influence on Equity Distribution
09:54 Taxation Issues with Equity Compensation
12:41 Setting Standards for Equity Practices
15:30 Determining Fair Equity Distribution
18:10 The Future of Equity Compensation
33:22 Pricing Equity and Risk Management
35:01 The Evolution of Equity Perspectives
36:50 Understanding Pool Sizes and Equity Allocation
38:58 Navigating Equity Topping Up Strategies
42:02 Benchmarking Equity: Best Practices and Pitfalls
44:20 The Role of Benchmarking in Equity Planning
46:50 Marketing Equity Schemes Effectively
49:34 The Importance of Transparency in Equity Disclosure
51:56 Common Mistakes in Equity Management
53:18 The Need for Structured Grant Systems
01:00:03 Trends in Equity Compensation and Market Dynamics
Transcript
Daniel Faloppa (00:00)
a good place to start is actually…
your story, right? Like how you got to do equity people and advise companies in that side. Maybe, Spela, do you want to tell it again? You told us before, but…
Spela (00:14)
Yeah,
sure. I think it requires a little bit of a historical context to how Tamás Naíven got into the topic of equity. And I credit that with a company called Legi because that’s where both of us got to start, got to know the topic of equity. Tamás in the role of people in finance and me in the role of head of CX. But what that essentially means is that you’re on the front lines.
You’re asking, you’re answering all the questions from the companies about their cap tables, their employee scheme plans. and you get to see all of the, you know, the innovative things, but also the mistakes. And then you can compare because you have a lot of companies you can compare one to another. and you can see, well, this strategy really worked versus this one was a little underwhelming. And then you can also see based on jurisdiction, in this jurisdiction, they
often go for EMI, it’s just a golden standard versus, well, Germany is just on phantoms all the time. What is happening there? And then you also see, if it’s a very small company, they maybe have figured out what they’re going to give to new joiners. But when it comes to refreshers, they’re all lost and all of the pool burn tends to happen then and they end up oversubscribed. And then they ask questions of, what, what are we doing? How?
Do we have to go to the board to get more equity in all of these questions? Then let us do one to do something about it because with equity, mostly you can only fix things in advance. have to anticipate the mistakes and kind of prevent them. If you have not introduced the tax optimize scheme, you can’t go back and do it. So we wanted to do something that would help people prevent in a very practical sense, manage equity.
really well and strategize with it so that it’s actually a tool that has a positive ROI on it. So that’s how we land with, you know, a SaaS company called Legi, CapTable Equity Management. Then people consultancy, learn what people consulting means and then you have equity people that now tries to help any company with their equity strategy.
Daniel Faloppa (02:29)
And I think that’s how we got in touch as nobody’s doing it. Well, nobody’s doing it well. Maybe nobody’s doing it at all, but nobody has that sort of pan-European expertise that stretches across several regulations and countries. also the specific area of equity incentives covers so much. You need to know so much, right? You need to know about startups, need to know about accounting and tax and…
forecasts and fundraising and like the whole startup scene almost, right? So that’s where we got in touch. And so you started Equity People, how long ago was it?
Tamas (03:07)
A little bit over two years now. August 2022.
Daniel Faloppa (03:14)
Nice, so you had your fair share of experience to date in these things.
Tamas (03:18)
I think it’s a
very funny time to start a company. Like a lot of, when we kicked off, lot of veterans in the space were telling us how well they were doing for the past two, three years and free money kind of reached their pockets as well. And we were like, well, that’s great. We’re not sure what’s going to happen to us.
But I think it, you know, the English saying, I’m going to butcher it, but like rough seas make good captains, something like that. Like, I feel like if we, if we can grow, if like we can establish the legs on which our business stands in these more difficult times than if, if ever there’ll be an easier time, surely I’m, I’m optimistic about that. then it’s going to be easier and we can.
perhaps experience like more rapid growth even than what we can achieve in these times. How was that for you actually for Ecuador? How did you weather through the different seas?
Daniel Faloppa (04:17)
uphill swimming for the past two years for sure. Now we diversified, we launched benchmarks a couple of years ago. We’ve been working with third party APIs and services, so we provide valuation to other services and we’re looking at several other verticals, like for example, equity compensation and employee compensation and stuff as well.
Dan Gray (04:18)
You
Daniel Faloppa (04:40)
Interesting. so like, well, maybe just to close the history part. And like, I imagine like aside from the business opportunity that like is fairly clear, but there was also a bit of passion from the two of you around the topic of employee equity compensation, right? I say this because, know, like it’s a very niche type of passion, right? maybe you can talk us through how that went.
Spela (05:02)
Yeah
Tamas (05:08)
Yeah, the monthly equity nerd meetings is essentially our meeting with Bella that we entitled that way. No, think there are maybe like, you know, this subculture probably has about 50 to 100 people in it, like in Europe. But
For me, more than the topic, my enthusiasm for working with Rotech is actually larger. For me, it’s always about who you do stuff with rather than what you work on. topics can get boring, but relationships are exceptionally interesting and always engaging. I’m privileged to walk this Rotech Bella.
Spela (05:51)
Can you tell that he has a… Sorry. Can you tell that he has a degree in psychology? Is it coming out at all?
Dan Gray (05:51)
That’s kind of Sorry, after you.
Yeah.
Daniel Faloppa (05:59)
and diplomacy.
Dan Gray (06:01)
was just going to add that I actually met Daniel originally back in 2015, I think. I interviewed him for a publication I was working on at the time. you know, long story short, that’s why I ended up with Equidem a decade later, more or less. Yeah.
Tamas (06:15)
Wow.
Daniel Faloppa (06:15)
Yeah, pretty much. Yeah,
we tried to work together for like four times and then the fourth time actually worked and yeah. Yeah. But nice. No, that’s super nice. So like…
Dan Gray (06:21)
Yeah. Yeah.
Daniel Faloppa (06:26)
Maybe we can start a little bit broad on this, but like, what do you think is the main purpose of incentivizing employees with equity and the main benefits from a company point of view, from a startup point of view, right? So we’re talking about companies that have that trajectory. They want to get to that global leadership position. They want to get to be a unique current to IPO to be sold, right?
So for those type of companies in the early stages and mid stages, like what are the reasons to provide equity that you see most interesting?
Spela (07:02)
There’s, there are many, many positions that we can take to answer this. One of them is what you said in the beginning when we talked about your article from 2015. You know, we, as a society or European startup industry, we need something that pushes the community forward to continue with starting investing in startups, continuing that momentum.
creating new modern innovative technologies and so on. that’s equity is from that perspective, one of the leading catalysts or whatever you want to call it. And then if we zoom in to the actual stakeholders, we have multiple stakeholders at play in every startup. You have the employee, you have the founders, then you also have a little bit more externally have the investors and
I think starting with the founder is the most interesting because it is at the same time, an exercise in letting go and it is in bringing people closer. So you’re letting go of a part of your company in order to bring people closer to the mission of your company. And that’s in and of itself a very important exercise for founders. but it does create this unique alignment between
what I’m doing and what we’re talking about. And that is very difficult to achieve unless you have something like equity. So we can talk about it in ownership and mentality and aligning on the outcomes. But what we’re actually trying to achieve is this activity versus talk connection. And for the employees, especially now that we are shifting into more modern employee employer relationships.
Employees understand that what they are doing is what is propelling the company forward. So the founder by themselves is not the one building the company. So the employee wants to feel as part of the journey. And one of the best ways of doing that is to attach an incentive, reward to all of your long-term work that is outside of just, you know, cost of living and
You know, you can survive with this, but hey, here’s a reward for the work that we can’t really measure on a day-to-day basis, but we can measure at an outcome. And then you will see with the investors, they have a very, a lot of them are very, very invested in employees getting equity. And I think it’s because of the learnings of the previous startups doing that, that it actually does have an effect on company outcomes. If you have very well aligned.
Daniel Faloppa (09:22)
Nice.
Spela (09:42)
employees working within it.
Daniel Faloppa (09:43)
So you think the of the push behind greater penetration comes from investors, greater penetration of these instruments in the startup scene?
Spela (09:54)
Yeah, I can, I can give my example of why I’m saying that it doesn’t mean that it’s true. but from what we see is VCs have an immense impact and influence over the term sheet. And where is the equity first talked about? It’s in the term sheet because the VC can say you need to have a minimum of a 5 % pool. And with that, they set, they create a new reality. So if you have it, you will distribute it.
Daniel Faloppa (10:08)
Mm-hmm.
Spela (10:24)
And yeah.
Daniel Faloppa (10:26)
Interesting.
Dan Gray (10:26)
Is a
part of that that they want the pool to be set up before a fundraising round so it’s not like a dilutive event later on?
Spela (10:35)
So that, yeah, so we have the concept of the pool, which is what I was talking about. So the VCs are the ones with the push to introduce the concept of a pool. then founders can be savvy or not, and they can talk about, you know, pre-fundraise pool or post-fundraise pool. But ultimately a lot of the first time founders perhaps would have gone without a pool if a VC would not have mentioned it.
And yeah.
Daniel Faloppa (11:05)
Yeah. Why do you think that is?
Spela (11:07)
I mean, it’s a part of it is in the first time founder sentence. So when you’re a first time founder, your main goal is to make a business survive rather than think about three years ahead and will people stay with you in three years? Which also going back to your, you know, your sentiment of the 2015 article, if we have more of this in the zeitgeist, don’t, don’t, whatever. If we have more of this out there.
Daniel Faloppa (11:31)
Yeah.
Spela (11:33)
It just becomes part of the culture. so I hope that in five, even now, actually, I got to say even now, first time founders just have it in the back of their mind and the equity pool is part of my plan. It just is. So we have achieved the first inflection point. Yeah.
Daniel Faloppa (11:47)
Yeah.
and it becomes standard, right? And that’s
what I was saying as well. We need to bring these practices. I mean, they are getting more and more adoption, right? But we need to get them to become the standard just because you don’t want to think about these things, right? You want to think as a founder about how to make the company successful, how to make it survive. So if you’re lucky, how to make it successful. If it’s a bad year, how to make it survive. But…
You’re not going to think exactly about two, three years from now if it’s not already baked in into the structure. so that’s, think that’s the power of standards that, yeah, they really get adopted and you don’t have to think about them. Right. And I think that’s the, well, the nice thing, or at least like something that can still create a lot of value in the European startup scene is setting the standards up in the way that they are set in the U S.
and allow people to focus on the actual problems and not on the bureaucracy around these things. And the mistakes, right? Because there are a ton of mistakes that one can do if it’s the first time that they do this and they don’t have the right guidance or information. I think that’s where you guys come in.
Spela (13:00)
Yeah, which is interesting. you know, setting the standard usually in our experience means two things. One of them is it becomes a trend. So a theme becomes a trend, AKA equity compensation is a trend, which means that the standard is a little bit ahead of people’s education. So we, we see two things then one of them is everyone wants to do it, but it leads to
more mistakes because now everyone is doing it thinking that it’s just is what it is. Everyone’s done it. We can all do it by ourselves, which we would all benefit from when there’s an equity pool implemented, just a quick primer on what equity incentive incentive are trying to do. So the founders can figure it out by themselves because most of it is common sense. Most of it is common sense. but yeah, it does open up quite a big.
Daniel Faloppa (13:48)
Mm-hmm.
Spela (13:53)
And that is where we see our value is in, let’s make sure that what we’re doing with equity ultimately has a positive ROI on all the stakeholders involved. And think that’s a very nice incentive to align on. It’s a classic win, win, win, or good business is a good business. All of those.
Daniel Faloppa (14:14)
Yeah. So before we talk about sort of the issues that can come out, what’s your feeling about the right way? Most companies start when the first VC gets involved, they create the pool. Is that the right starting point? Should they start before? And how do they approach that issue, let’s say, that problem?
Spela (14:37)
Yeah, there’s ideally, ideally you would have an idea of your own capabilities before you go to a VC, mostly because if you are a non-technical founder and you don’t realize that you will have to invite a CTO into your maybe founding mix, that means that you’re forgetting about a 10 % cap table dilution for yourself. that’s, so my, my point here is self-awareness of
Am I and my founding team bringing all of the skills to the table? Because that’s where equity starts to dilute already. So that’s it. And then ideally it would be a thought process that is now internal to the founder because they say, I want to invite people in that will feel like a partner. And if you start from that position, it’s not.
it’s not difficult to end up with AYA, I will have to give them equity. But then, yeah, of course, if you have a VC, and luckily, maybe they’re a convertible loan or a safe, they join you, they tell you a little bit about it, but they have not changed the strike price at all, because they have not priced you around, you can still take advantage of all the available tax advantage equity plans.
Daniel Faloppa (15:34)
Yeah. Yeah.
Spela (15:57)
So hopefully that happens. If it doesn’t, and you’ve only talked about it after the price round, you’ve already missed out on something before.
Daniel Faloppa (16:04)
Yeah.
So like extreme ideal case scenario, you start, recognize you need a CTO or like whatever those ones, you probably already give them equity straight away. And then like you still hire maybe two, three more people, you promise them the equity and then you end up doing maybe the paperwork or something when you do a safe note or like this type of timeline.
Spela (16:29)
Yeah.
Yeah, this is it’s really into the nitty gritty. So maybe it’s somewhat like the accelerators or, you know, early early stage forums or people gather would need to show people how to give out equity before you had a price round. So because
Daniel Faloppa (16:45)
Yeah, 100%. And to my understanding, very few do that. Like the
knowledge around that is very superficial and a lot of the operators don’t even know about that. So, yeah.
Spela (16:59)
And it’s always expensive. Sorry.
Tamas (17:00)
We
I was just going say that we do see letter of intent as a generally accepted legal way of giving value to words.
Daniel Faloppa (17:12)
Yeah, of locking in that date, locking in that strike price, and then you can use that to then do the rest properly afterwards or something.
Spela (17:21)
Yeah, there’s, yeah, if we’re giving common shares, it’s really important that the fair market value has not changed before, or, you know, at the letter of intent and actual execution. but right now we’re talking about such a small number of people and the only person that can execute it as a lawyer and the gap between how much, you know, a two employee founder can afford versus how much help they would need. It’s too large of a gap, so they can’t do it.
but it’s also not enough money in it for a software to actually just come in and do just that. I it has to be an add-on feature that is an on-ramp for feature acquisition, essentially.
Daniel Faloppa (17:55)
Yeah. Yeah.
Yeah, or a governmental platform, some players that have different incentives to actually offer that feature.
Spela (18:10)
Yeah, yeah, the government, would be funny if the government said, here’s a platform so that I can help you pay less taxes. That would be a very good government.
Daniel Faloppa (18:20)
Yeah, but
it’s not less taxes, is it? Because then you make the whole scene actually kickstart. And then when you have a big exit, have 100 millionaires or something. That money is reinvested in innovation. In my opinion, what they do with the investment matching, like early stage investment matching with taxpayers’ money and things like that, is the best money ever spent. You’re going to get people that work like crazy with no…
Spela (18:40)
Hmm.
Daniel Faloppa (18:47)
guarantee of a payoff and they get nothing per hour. I always struggle to see a better investment of public money than early stage startups, at least matching.
Spela (18:58)
Yeah,
I think you’re right in the… Yeah, you need to offer something so that people are willing to work for more than just the present value.
Daniel Faloppa (19:07)
Yeah, because I think
most people don’t recognize this, but I think it’s pretty simple. The condition, like the main issue all tax agencies have with equity compensation is that you’re gonna under price it, right? So you’re gonna give those shares at the value that is not fair is too low. And that means you’re almost giving a tax free gift to employees. And then in that moment, they come in and they say,
Spela (19:25)
Mm-hmm.
Daniel Faloppa (19:36)
look, this shouldn’t be tax free, because like salaries tax like 40 % in Europe on average. And so that type of bonus should be taxed as well, right? To my understanding, that’s the main taxation issue around the whole equity compensation.
Spela (19:50)
Yes, yes, Mostly in, you know, UK, France, all the countries that have any sort of tax optimized schemes worry about underpricing this exercise price. Yeah.
Daniel Faloppa (20:04)
Yeah, the other ones
Dan Gray (20:05)
Can I ask
Daniel Faloppa (20:05)
just
Dan Gray (20:05)
a very basic question?
Daniel Faloppa (20:05)
apply the maximum tax rate and that’s it. Sorry, Dan.
Dan Gray (20:11)
I’m just curious, is a super basic question. the least familiar about this topic. Why aren’t they just taxed at the point of getting liquidity on those shares? Why do they have to be taxed at XOS?
Spela (20:24)
I would love to have an answer for you that that question has baffled startup operators for years now. And that’s why everyone is fighting. That’s why when I say, you know, you can only fix the mistakes ahead of time. I’m talking about tax optimized schemes that have understood the fact that when you exercise, that’s not the same as liquidity. And these tax optimized schemes usually understand that.
Dan Gray (20:26)
Okay.
Mm-hmm.
Mm-hmm.
Spela (20:52)
And they say, at exercise, we will not tax you on that. We are deferring that to the sale point.
Daniel Faloppa (20:58)
And to my understanding, we’re going in that direction. at least Spain has new regulation. The Netherlands is trying to do new regulation. Then the rest of the countries, I’m not really sure. But to really tax the capital gain once you realize it, because that’s the only moment where the person actually has a bit of money to pay that amount.
Dan Gray (20:58)
Just-
Daniel Faloppa (21:19)
And the only other problem is this tax upfront. If you under price the options or if you like, if your strike price is extremely low, then that counts as an immediate benefit. And so you get, you get the tax bill and that’s what you really want to avoid as a company because it could be huge. And the other one is what you really want to avoid as an employee, right? Cause taxes on capital are like 15, 20, 25%.
and only when it’s realized. But then if you’re also an employee, you might end up paying personal income tax, which is a lot higher and it’s a problem.
Dan Gray (21:56)
also creates this weird problem with for tax purposes, like versus valuations for fundraising. And there’s this dishonesty about the margin that preferred stock has. It’s invented just to create a justification to differentiate the two prices. And it’s a really weird mechanism. It just makes everything messier.
Spela (22:20)
Yeah, it’s, I mean that there are a lot of preferential rights that preferred share classes get. And one of the main ones that we’re seeing right now, for example, is with, you know, super high growth era and now leveling out the era and maybe even downward. That means that a lot of companies had to raise an additional amount of money under a lot of pressure, which usually means that investors get better.
preferential rights, which usually means that something called like a liquidation stack
grows to a, I don’t know, I don’t know if something is worth 700 million right now, but it was worth 10 billion two years ago. Likely the 700 million right now is actually all going to one of those investors because of this liquidation preferential stack. And so in that case, I can really see the value of, know, tax value for the common shareholder is basically zero.
Dan Gray (23:18)
Mm-hmm.
Spela (23:27)
At that point in time, it is zero. So I think there is value in differentiating between the two. Also because, you know, as a common shareholder, if you don’t have any voting rights, you have no say in what’s going to happen. So you’re just waiting. You’re like at the mercy of people waiting for money to hopefully land in your bank account. And if there was a secondary, there are discounts to common share classes.
Dan Gray (23:30)
Mm-hmm.
Spela (23:54)
rather than prefer extract less. I can see the difference, but I do also agree that a lot of companies are gaming the system because there’s a very clear incentive to do so.
Daniel Faloppa (24:03)
But in that case, and this might be very specific, in that case, liquidation preferences for the last investor are going to eat up the whole 700 million. Do they get applied even before employees’ incentives? Yeah.
Spela (24:20)
Yeah.
every investment, every agreement will have a very detailed description of the preferential rights. So the liquidation preferences. it will say, if we exit E2 share class gets paid out first. Everything that’s left gets to the da da da da. And so usually common is all the way in the last place. And that’s, that means employees and founders.
So the founders are in the same boat as the employees. So you do have someone standing up for you as the employee, but there are ways.
Healthy relationships usually lead to, yeah, we’re all underwater. 700 million off of 10 billion is a huge drop, but we still want the business to succeed. So if that’s the agreement in there, if we want the business to succeed, likely it will happen that even in that zero, what do you call it? Even if you’re not supposed to get anything out as an employee, perhaps there will be a carve out.
for employees because healthy people still understand that they wouldn’t even be at a possibility to sell something without the employees. So there are lots of ways to act in a healthy way, even if everything is underwater.
Daniel Faloppa (25:40)
Yeah, but at that point it becomes a negotiation and it’s not contractual. And so it comes down to the, exactly to the health of people and then their relationships and yeah, yeah, interesting. Okay.
Spela (25:44)
Yes.
Tamas (25:54)
Which one of those two valuation types do you do more of?
Daniel Faloppa (25:58)
We are overwhelming on the funding rounds, like the vast majority. I think we looked at the data the other day, about 60 % of what we do is funding rounds. Another 25 % is exits, either partial or full exits. And then we work on planning. So a lot of people use us for planning a funding round, planning an exit, and stuff like that. And then just marginally, we’re doing taxation type of things.
Tamas (26:28)
Do the methods from your perspective differ in those two cases or you use the same methodology applied slightly differently? Yes, you do apply the discounts for when you’re evaluating common stock for a tax or is there something else in the methodology that is different?
Daniel Faloppa (26:43)
Yeah, so the known state of the art is that you have an enterprise value, you have a company valuation, and then you do a Monte Carlo type of waterfall analysis, and then you see what’s the difference in price between preferred and so on and so forth. In practice, to my knowledge, almost nobody does that mathematically, and we haven’t had the chance yet to implement it in the tool. So for now, the practical state of the art is that
you do a full blown valuation of the company, which is also something that most people don’t do. And every year they go, just our multiple last year was 10. We have twice the revenue this year, so our valuation is twice as much. that’s already like, there is even a lower point than that, which is like, we don’t even look at our numbers, we just take an average valuation of startups or companies in general. And that’s what we use.
the known state of the art and the practice still has to trickle down and yeah, we’ll bring it there hopefully at some point.
It’s crazy how little knowledge there is and how little practice there is on these things.
Dan Gray (27:52)
Sounds like we both face a similar set of challenges though.
Daniel Faloppa (27:55)
Yeah, I think it’s a great opportunity. It’s a lot of fun to try to unlock this innovation scene if these things get understood and used easily. We’ve done, for context, we’ve done our phantom shares in Spain a couple of years ago. That was the best way, taxation-wise and things. And that’s almost just a contract with a reference underline, but it’s…
Yeah, it’s very strange. So you go from like the extremely regulated, you know, to like, you can do almost whatever you want. And there is, there are no standards. We managed to get into a standard, well, sort of a form that was already made for somebody else. So we didn’t have to write the document from scratch. And that’s what we did. yeah, it took us forever. So yeah, really not the best way.
But so, okay, like continuing on the sort of history, right? So you do, let’s say you get that first pull in, right? You get investors to teach you about this, to tell you about this. You understand it’s a good thing. You do the pull, you start giving out equity to the people that you have at the moment. Like, where do you look at for like what’s fair? How do you think about…
what’s fair for the people that are in the company at that moment.
Spela (29:21)
That is, it’s going to be one of those silly answers of it’s more art and science. And I know that all of the comp consultants use that, but it really does come down to the art of knowing yourself. I think that that’s how I use that sentence. It’s the art of understanding the context of life here. Because if you are a life science company, or if you are developing something with very long R and D cycles,
you are inviting experts in likely under different terms than if you’re doing a SaaS software or if you’re doing a AI company, because you can wake up the next morning and have something ready versus in R &D heavy environments, it will take you five years, not because you’re slow, but because of regulation. There’s just a different life cycle. And so how do you look for
What’s right in those two different examples for one is, okay, I understand that for my company to be successful, I have to understand the industry that I’m in and I have to understand that what people I have to attract. And so if you know that, then it’s easy to say, okay, this PhD person that will likely stay partially at Johns Hopkins for the next two years until I can pay them well. It means that I have to find a way to keep them for the five years that I need to put something on the market.
And so you find something that is a lot of fractional things with a lot of milestone based vesting or at least a very long vesting schedule. Now, when it comes to the number.
That’s where it gets a little bit tricky because again, you have to understand what value is this person bringing. And if you answer the question of without this person, I literally cannot do this. Then the number should be higher. If it’s this person will help me execute something that I already have in my mind, then it should be lower. and then you add a couple more layers. One of them is there are a lot of benchmarks out there for the U S a little bit less for Europe, but
Daniel Faloppa (31:07)
Yeah.
Spela (31:21)
Even if you put all of that outside, you can start with a very, very basic spreadsheet and you can ask yourself two questions. One of them is, who do I need to hire? So as a founder, you should likely know the answer to that. What seniority do I have to hire them? Will they be able to join me full-time? Are they giving up, know?
They’re Johns Hopkins and they will guarantee you get a grant for $10 million the next two years. Okay, they’re giving up that to join me.
And then you reverse engineer that from the pool size or from the expected outcome for these people. So reverse engineering helps you in both ways to arrive at actually the healthy conversation between you and the person on other end. You’re giving this much away by joining us instead of Johns Hopkins. I want to give you a better outcome if you join me. Or if you already have a pool, you say, look,
Daniel Faloppa (32:08)
Nice.
Spela (32:20)
I only have 10 % to give out. want to hire these five people. You will go through a promotion in between and there’s going to be performance elements. All of these things point out to the fact that I can only give you 1 % right now. Otherwise I can’t hire these other people, which means that all of our equity will be worth zero because we can’t hire them. So this is how, this is why I say that a lot of it is common sense, but it can be muddied with a lot of these external
opinion pieces with benchmarks and every first five employees, all of them should have at least 1%. Well, not in all cases. so yeah, put the, take a spreadsheet out. Who are you going to hire for how long? Where do you want to get at? how much is it going to cost to, yeah. And, just focus on the outcome because that’s the big difference between talking about salary versus equity.
Daniel Faloppa (33:00)
Yeah.
How many?
Spela (33:16)
Salary is in your pocket every month. Equity is about the outcome in 5 to 10 years.
Tamas (33:23)
Yeah, so you’re essentially pricing the risk like any investor is pricing the risk.
Daniel Faloppa (33:23)
Yeah.
Yeah. And then does this sort of change into more like a comp plus type of mentality as the company grows?
Spela (33:38)
You have, yes, that’s a very good question. That’s actually one of our discovery questions with all of our new clients. We tried to understand how they view equity and it does change. It changes from, need equity to close the gap between the comp that we can offer and the comp that they want or are giving up versus equity as a cherry on top for all of us to be aligned, to be in the same boat. And, and
The third one is, know, we just philosophically believe in equity so much that we’re just going to give it no matter how high, low our compass. and the more later stage the company, the more cherry on top it becomes because you’re getting paid well and the risk is lesser and the alignment has already been created. The standards already there. You’re just executing now. Yeah.
Daniel Faloppa (34:28)
Yeah.
And, and and the type of profiles that you’re looking for are in a sense more uniform, like it becomes a more sort of professional offer as well. Yeah.
Spela (34:38)
Yeah,
yeah, especially in the later stages where you have a lot of, yeah, later stages, if you’re comparing yourself to a man, all of their comps are out there. So you know what people are expecting. So you know what, as a startup, you have to talk to them about or reeducate them about and yeah, it gets easier to understand, but harder to reach.
Daniel Faloppa (34:57)
Yeah.
Tamas (35:01)
So, so, so, so Daniel, so something’s really interesting for me. think that like a lot of founders would give their earlier self as advice is to never look at equity as like a cheap resource. Like at the beginning, you feel like I have zero cash. All I have is like ownership over my company. So that’s what I’m going to give out more generously.
Daniel Faloppa (35:01)
And see you guys.
Tamas (35:24)
but almost always that comes and hunts you down at a later stage if you do make it there. Or if we come into a company that is like series A, B, and they still communicate along those lines, I get a bit stressed. I’m like, yeah, you should really see more value in your equity. Investors have done that. Employees are joining because they see that.
Daniel Faloppa (35:31)
Interesting.
Tamas (35:46)
you should also join them and you should really look at it as the most expensive resource that you’re going to give out.
Daniel Faloppa (35:52)
Yeah. And probably the way to understand it best is to go through this exercise, like for my specific type of company, for my specific future, what do I need in terms of people, human resources, and how can I maximize my equity utilization for that, for the purpose of altogether creating value? Because yeah, you can give 10 % to one person, but then as you were saying, the final outcome is going to be worse actually, not better.
might be slightly better for the single person, but unlikely actually. Interesting.
Spela (36:26)
Yes, yes,
yes.
Daniel Faloppa (36:28)
And how do you see, I’m sure you get this question five times a day, the pool size? Not really what’s the right size of the pool, but how do you work out the problem of the pool size? Is it just always 10 %? How do you think about it?
Spela (36:50)
It’s so it’s, is a big question. it is tied a little bit to what I was saying in the beginning. It is more and more calculated by the VC side because for their returns, they have to understand their, you know, dilution and where does the money go? So they usually come in with a number that they understand will work well for them. So they say at this valuation, we can give you this much of a pool, but then after we’re closing the round, maybe then you can top up, just
There’s a lot of math involved on their side, so it’s quite limiting there. But in our experience, again, I use the word healthy a lot, but it’s really the most healthy thing to do as a company is to know where you’re going to put the equity vehicles and then ask for that much or just loot for that much. So a healthy exercise would be to say, I am at
pre-series A, we’re gonna raise. The goal is to grow by this much. Here’s our budget and calculation. We anticipate that we will need 7 % for that. Okay, it will hold us for two years. And then we anticipate another fundraise and then we will top it up. So it’s better to do that than to ask for 15 % because then you’re prematurely diluting all the existing stakeholders for the hope that maybe you will use up all of that pool.
Daniel Faloppa (38:16)
Yeah. Yeah. So just maybe for like the average, I would imagine first time founder, like what goes in through your head when you think about topping up? How does that work?
Spela (38:16)
So there are.
So usually it’s a conversation in the board. So there’s a founder that says, Hey, we’re going to run out of the pool soon. we’re currently at 7%, which means, and we have zero unallocated. what we’re anticipating now is either two conversations. One of them is we just want to top up outside of around, or it’s a top up within a fundraise. And if it’s outside of around it’s
Daniel Faloppa (38:55)
Mm-hmm.
Spela (38:58)
It’s straightforward, but more of a painful conversation. like, Hey, the board, all the investors say we need to agree on a new dilution. It’s going to go topped up to 10%, which means that we will have 3 % unallocated. There’s a, there’s of course trickle down effects on that because it means that the existing employees are getting a little bit diluted. Like everyone gets the looted from that. So as ideal as it is, it’s so it also has its drawbacks.
And then you, yeah, if you do it within a fundraise, it’s just a, it’s a similar conversation, but it’s just part of the fundraise. saying we will raise it this amount and we want to top up to this much. then the investor has to say, okay, that works with us or not. But it’s basically the same amount of checks and balances of investors have to agree. We have to understand that it’s going to mean a 3 % dilution for every existing person here. Is it worth it for us or should we maybe rethink our equity?
scheme going forward that we may be giving out too much to do. We have already run out of 7%.
Daniel Faloppa (39:59)
probably the second strategy is a little bit easier politically because you are doing your series B and you can say like, hey, Sequoia will not invest if we don’t top up up to 10%. So that’s what we have to do, kind of, right? Okay.
Spela (40:12)
Yeah, I think that’s a fair description.
Daniel Faloppa (40:17)
Interesting.
But then in that case, you lock in a higher strike price.
Tamas (40:18)
I’m also very good.
You go, Daniel.
Daniel Faloppa (40:22)
No, no, I was just thinking like if you do it in that strategy, like if you do it before the round, then like, well, you still need to do your FUR9A, you still need to do your evaluation ideally. But if you do it with the next funding round, you are locking in that strike price 100%. Like there’s no way that then you can issue at lower than that.
Spela (40:41)
Yeah. So every time, yes, if there’s an event that changes the preferred share price, it will impact the strike price of your equity scheme. but topping up a pool just by itself would not change, the strike price. would have to, reprice it in a way, but it wouldn’t, it wouldn’t say, yeah, now you got 10 extra million and 70 extra in valuation.
and change it too much but anyway the strike price is attached to the grant at the point of the grant not at the point of the creation of the pool so.
Daniel Faloppa (41:13)
Yeah, fair.
Yeah, that’s a good point. Sorry, Thomas, you wanted to answer.
Tamas (41:19)
I was just going to go back to the mechanic, the, to the mechanics that we were discussing for, pool negotiations. I think it makes a lot of sense, which Pilla is saying, but, but I see it play out in a very, very few occasions. I think in an overwhelming amount of cases, this is a, a fight of, of numbers out of thin air. Like the VC models it for a return, but the other side does no modeling, at all.
more anchored by 10, 15, 20 percent an article that they read on Carta and working out exactly what you need and only taking that is a very, very sensible thing to do.
Daniel Faloppa (42:02)
Yeah. I mean, like we’re talking about best practices, but I can imagine like, you know, the priorities are always something else, right? If you are like a team of like five, 10 people, like it’s going to be hard to reason through all these things on your own, unless you’re really passionate about them, unless you really are thoughtful about them. But I can see most founders are not in that mindset when this happens.
Spela (42:11)
Yes.
Yeah, which is fair. I mean, their main focus is on their business surviving and spending a week on this could mean a delay of a product launch of a week. And that is more impactful than, you know, an extra 2 % dilution in the one year span. In the 10 year span, well, maybe there wouldn’t be a company if we didn’t do a product launch. So I’m okay with the extra 2 % dilution. Yeah.
Daniel Faloppa (42:53)
Yeah, it’s quite interesting. It connects quite well with what we are saying as best practices more for fundraising is to really try to understand the ambition of the company, turn it into a strategy, turn that into financial projections, and then use those financial projections to understand whether the ambition makes sense and adjust, iterate through this and adjust until it gets solid. We should definitely add equity part for this for employees because it’s quite critical for the…
winning probability of the company, not like, you know, the survival and stuff, but like, if you want to make companies that are actually winners, this is, need to think about this stuff properly. And in Europe, I don’t see many companies thinking about it as hard as they should.
Tamas (43:39)
I would argue though that if you go through that cycle that you just described, use it to sell your equity packages. That’s an amazing way of explaining the value beyond the equity package. These are our goals. This is how they translate to numbers. This is how they impact valuation. This is how your impact is going to change that equation. And this is what’s going to flow back to you.
Daniel Faloppa (44:02)
Yeah, yeah, very interesting. And then as part of what you do, you are on the benchmark side then. What’s your role? When does it come in? I know it’s more like later stage. So can you talk about that?
Tamas (44:20)
Yep, I can jump in and can add any thoughts. We typically find more traction later stages, but that’s not by design. It just so happened to be that that’s where we found the wallets that see enough value in our services so that they pay us. But we’d love to come in early enough to prevent mistakes and situations from happening rather than…
find ways of correcting them and rectifying them. When you say that we sit more on the benchmark side, you’re partially correct. So we do have our internal database on what we see in terms of both numbers and terms, fitting certain companies at certain stages of certain styles and cultures and…
I really feel self-conscious where I bloat the problem of benchmarking equity because it would also be a great sales strategy because I increased the perceived value of our service. But it is genuinely how I see this problem set in that if you reduce it to a number, you’re ignoring like 90 % of what should go into that decision.
Daniel Faloppa (45:40)
Yeah.
Yeah.
Tamas (45:43)
And Shpil already highlighted the importance of the budget at early stages. Like, I mean, the later you get, that is the more important that gets because if you’re just relying on an outside data source to benchmark your equity packages, but actually that doesn’t make sense with your pool, you’re doing every single shareholder of this service. Yeah. So benchmarking is one side, but because…
Daniel Faloppa (46:04)
Yeah, yeah, the damage is huge. Yeah, yeah.
Tamas (46:11)
It is a bigger problem than just numbers than we arrive at strategy. So I would say that our clients see probably half of our value coming from benchmarks, but half of it coming from the scheme design and the strategy around equity planning. And that can get a very big problem, like a very wide problem.
Daniel Faloppa (46:32)
And when you
get in, do you manage to massage what they have currently into something that works? Or do you just go like, okay, for the past five years, this is all wrong. We’re just gonna start a new scheme for the new people. How does it work?
Spela (46:50)
Yeah,
there are some companies where the main problem is with the marketing of their equity scheme. So some companies, when we do our evaluation of them, we look at the numbers. But when we look at the numbers, I mean outcomes. So how would you compare to others and then the terms around those outcomes? I love to give an example of if you and I are software engineers, you get a hundred case salary, I get a hundred case salary salary. We’re like,
We’re basically the same. Let’s forget about jurisdiction. but then if I say you get a million dollar grant and I get a million dollar grant, we’re, unless we know the terms were absolutely not the same because I could be behind a clawback clause and I could have exit only vesting and then they bankrupt and I have no chance of getting a million dollars and yours is, you leave tomorrow. You accelerate vesting everything, unlimited time to exercise.
Daniel Faloppa (47:46)
Yeah.
Spela (47:48)
This is where it’s, this is the first thing that we look at. And when we see it with a company and sometimes it happens that the company is so employee friendly, so employee friendly to their own detriment, that the only way to turn it into a positive ROI is to really educate the employees because the problem with employee education is that they don’t have those benchmarks in their mind. They don’t know that they’re getting better treated than other companies. So our role is to tell them, look,
Daniel Faloppa (48:00)
Mm-hmm.
Spela (48:17)
There’s five ways of talking about lever clauses and your company decided to do the most employee friendly one. You should not, you should be grateful, but you should understand that they are number one.
Daniel Faloppa (48:29)
Yeah, that these are
your outcomes and somewhere else you will have completely different outcomes with the same grant size. Yeah.
Spela (48:32)
Yeah. Yeah.
And so that’s for some companies, that’s enough. But for others, we basically have to, it happens more often that we basically have to redo a scheme that we say, okay, starting January, 2025, we’re implementing a new scheme.
Daniel Faloppa (48:51)
This is how you do it. Not what you’ve been doing so far. Yeah, interesting, interesting. Yeah, I mean, at some point, was really, I got into disclosure questions, right? And that’s only the part that the employee knows, right? Because normally, they have no idea about the cap table. They have no idea about liquidation preferences, potential outcomes, and all these things. And we were working with a researcher.
Spela (48:53)
Yeah.
Daniel Faloppa (49:18)
And she had her PhD thesis, I think, on this. And what kind of information should be disclosed and stuff. That’s even the next level, right? The state of the art is not even there. It’s super interesting. But yeah, very, very good point. Yeah.
Tamas (49:34)
I
do venture a short answer to that. I think all information should be disclosed that allows a recipient to arrive at the value themselves, to be able to judge the value themselves.
Daniel Faloppa (49:44)
Yeah, for sure.
Yeah. Yeah. Yeah, yeah, but that’s not disclosed at all, right? Like, yeah, not even closed, not even closed. and like, yeah, the terms, I mean, the terms probably must be disclosed. But yeah, how much do you really know? Interesting.
Tamas (49:50)
no, no, no, no, no.
I would caveat that by it again comes down to the negotiation power dynamics. If you’re hunting for senior talent.
Boy, you will disclose that information. You will disclose it on the first call because you want them to talk to you. And then the more the power dynamics tail to your favor and the more junior the candidate, the less likely you are to be talking about your revenue projections and why you believe your equity is of a certain value.
Daniel Faloppa (50:16)
you
Yeah.
Yeah. Also because you commit to something and then like it creates all sorts of questions afterwards. Awesome.
Tamas (50:42)
Maybe
one good example that I would drop here, we recently talked to a company called Alen. They’re an insurance tech company in France. They have an extremely open approach to all of this that essentially allows even more junior candidates to see the value of their package, to see why certain decisions in the equity scheme were made. I think it’s a…
It’s a pretty beautiful situation, especially because they are very, like, I think they’re a serious E, but please, please don’t quote me on that one. So I think it’s a lot less likely, a company is a lot less likely to do this at such late stages of their development.
Daniel Faloppa (51:24)
Yeah, but but it makes sense, especially if you see this new, as we were saying, like new approaches to employment overall. Right. And having people as partners. Very, very interesting. Yeah. The well, I mean, we can talk about so many things. It’s it’s it’s extremely interesting. The. Is there any other like sort of main mistake that you see people doing and and.
Like you beg them not to or to revert, go back in time and not do that.
Spela (51:54)
second.
Yeah, there’s, so we were just invited to an event for general councils of VCs. And one of the questions there was, you know, very similar to what you were just asked. And to prepare for that conversation, we looked at data points and stats, and it helped us answer that question. So I can share that with you right now, which is it’s a two part discovery.
The first part is if we are following the best standard practices, that means that VCs are asking companies to introduce employee pools. Now we see that 80 % of term sheets have an employee pool in them. Great. That’s great news. So 80 % of companies will have an employee scheme. How many of those companies have an actual system or a plan
for new joiner grants. if you join at L3 Software Engineer, do I know how much am I going to give you? Only 60 % of companies have that plan. So 40 % are a little bit ad hoc, maybe discretionary, but it’s still more than half. But when you look at another stat, is 90 % of companies that have an employee plan will eventually give out
Daniel Faloppa (53:07)
you
Spela (53:18)
a refresher grant, so a promotion grant or a performance grant, tenure grant, any of those. But only 10 % plan for them. So only 10 % of companies actually have a plan, a budget or an equity bands grid leveling all that to support their fiscally responsible treatment of their pool. So this is where we see the biggest problem. It’s in the
Daniel Faloppa (53:41)
I can easily see that. Yeah.
Spela (53:46)
thinking of there’s something beyond just someone walking in the door. We have to incentivize them later again. They will go through career progression. They will expect a promotion. They will also, they will expect a bump in salary. They will expect a bump in equity. The questions will come. You don’t want to be in a situation when your VP engineering is asking you for a bump and you don’t know how much to give them because then what your mind is going to do is you will benchmark against their previous percent, which is wildly higher than it should be because it’s
a new joiner grant that happened four years ago. So if you gave them 1%, now your default is going to be, I saw that somewhere, maybe you give them 50 % of the new joiner grants or 20 % and you’re going to give them 0.5. Again, at a valuation of 500 million. So what you will give them is so enormous. And that all could have been fixed if you just said, okay, it’s not just new joiner grants, it’s also refresher grants. How will we do that based on what?
Daniel Faloppa (54:19)
Interesting. Yeah.
Spela (54:45)
And a lot of the problems would be resolved that way.
Daniel Faloppa (54:48)
Yeah. I think, think Thomas, you need to, you need to leave us. Yeah. Thank you very, thank you very much for the, for.
Dan Gray (54:54)
Unfortunately.
Tamas (54:54)
Yeah, I’m super sorry.
Daniel Faloppa (54:57)
Yeah, we’ll continue and then maybe we do another one because there is an infinite amount of things to talk about. See you next time.
Dan Gray (55:02)
You
Tamas (55:03)
Amazing. Thank you so much for the opportunity.
Dan Gray (55:06)
Thanks a lot, Thomas.
Tamas (55:07)
Catch you soon. Ciao.
Spela (55:07)
I’ll see you
Daniel Faloppa (55:08)
Awesome. So 80 % of people do have grants. that’s nice. major, do they screw up, let’s say, the details? Could it be the taxation side or the framework? I know in the Netherlands, we work with a lot of cap table companies and they generally have these questions and they have their own answers because everybody asks them.
Hence your background as well, right? And I know each of them has a different horse in the race. Like, I kid you not, every single company like says, this is the best way to do employee compensation by far. You should ignore everything else. And there are four different answers. And it drives me crazy.
Spela (55:49)
Hmm.
Yeah, this is, this is unfortunately one of the downsides of standardizing too much because then you can’t encapsulate the art of the science. So I think every time someone is talking about this is the best way, they should just caveat it with if you are this, this, this, and this type of company, and then everything would be okay. But yeah, taxation, we discussed it before. That one is
Basically impossible to reverse. So if you don’t start with an EMI scheme and now you’ve gone through three rounds, you can’t go back and say, so early employee, now you have EMI treatment. You can, but from that point on, not in the history, you’re not in the, at the first point where you got it. So I think there’s a couple of companies that are trying to make it so that these early stage companies can access tax optimized documentation. But again,
it can lead to expensive mistakes because then it’s not a bespoke treatment of the plan tailored to the company. It’s a standardized one. And then you inevitably have to involve a lawyer, but maybe that’s okay as a risk and you involve a lawyer later on when you have more money, which is, you know, startups are about risk and this maybe as a calculated risk. Why not?
Daniel Faloppa (57:11)
Yeah. No,
probably is. Just even just because of necessity, like you physically cannot, like, you know, I remember when we started and it gets like you start thinking about different things afterwards. But when we started, like the cost of the notary was, you know, what prevents you from starting a company? you know, especially like in places like Italy.
Spela (57:28)
Hmm.
Daniel Faloppa (57:35)
where the notary alone could be, you know, two, three K. And if you’re starting as a student and you know, you have no idea whether this is going to make money or not. And, you know, you want to at that point, you want to give shares already to people, right? So then at the notary, you need to bring like six people that raises the cost of it even more. you don’t have the knowledge to do it. You cannot pay anybody to help you. It’s such a difficult situation.
at that stage and then yeah, you do the mistakes. What was it? Like some things are incredible, tag along rights, like companies that are started without drag along and tag alongs and yeah, you can add them later. That’s a lot easier to add later compared to changing employee scheme and taxation and things like that, but it’s incredible. So yeah.
Spela (58:26)
Yeah,
I do think that the, it takes the higher value is to create a healthy, good company. And some of these things you will just have to deal with later. I think that’s okay as a startup to have the, know, yeah, it’s your first mission is to even be a good and healthy company. Maybe, maybe what’s helpful for these early stage founders is to
understand what they will have to deal with later so that they can pick a moment when to deal with it. So maybe from this conversation they can even take that. Okay, I know that I will mess up, but at least this guardrail will wait for me here. So then I will reach out to a lawyer when they have 5k extra laying around.
Daniel Faloppa (59:11)
But yeah, but that’s enough, And I do think that’s what we should be trying to do is to at least put some standards around these things, right? So they’re like, okay, look, this is going to screw up, but don’t worry about it until this stage. That’s already very, very helpful compared to… Some people are more detail-oriented and risk averse, and they can spend six months just trying to figure this stuff out and delaying their whole project, like wasting a lot of resources on things that don’t…
Spela (59:28)
Mm.
Daniel Faloppa (59:41)
contribute at that stage that much to the success, to the final success of the company. Super interesting. I just maybe would like to close on one maybe trend note. Like what do you see in terms of adoption of these instruments and maybe in different countries, different legislations? How is the environment developing? What do you think?
Spela (1:00:03)
We still see the West versus East differences. So in Europe, have the UK as the leader. That’s not changing anytime soon. Maybe now Germany is going to do better with their new financing act. We’re in close contact with quite a few lawyers and still conflicting information coming from, you know, what’s actually going to happen. So we see that difference.
which means that the further east you go, the less education is about equity, which means that the employees ask less questions, which means that the companies are not pushed to ask questions of the government. So the trend there, I don’t think has changed much. The trend…
in VCs asking the government to change legislations is increasing. So that’s what we see with the Financing Act and the not optional and index mentors being very, very strong on that side. And then when it comes to just trends in general within the strategy of equity schemes, I think you can, you could maybe even just bet on what I’m going to say right now, because it is so obvious once I explained that we just went through
a lot of up, up, up growth. And now we’re going through a little bit of a tougher time for quite a few SaaS companies of stagnation. Stagnation is a bad word. It’s lower growth, like slower growth. And in some cases going down with their valuation. Guess what they want now from their employees? They want performance. So you see that reflected in equity schemes as well. So if you want to get a lot of equity comp,
you have to be a high performer. So that’s reflected in equity. It’s also a lot less. It’s a lot more focused on actually planning out the equity grants, the new joiners, how much are they getting? we, can we afford people from Microsoft or from Metta? Do we even need those types of employees? So there’s a lot more questions in their minds before they actually decide on a talent equity compensation strategy.
We see that the vesting schedules are still the same in private companies, so four years. We see differences in public companies. They’re decreasing them, but two wildly different worlds, public and private. Equity grant amounts are going down. C level are remaining the same. That’s kind of where we’re at.
Daniel Faloppa (1:02:10)
Yeah.
That’s awesome. Yeah, that’s a lot of detail and a lot of different models, different mental models to think about all the different cases. Well, I think this was super interesting. I don’t know, Dani, if you have any other questions.
Spela (1:02:27)
Yeah.
Dan Gray (1:02:35)
I just one thing that was running through my mind for most of this conversation, to be honest, and that is the kind of parallels between what we do and how like in both cases, you can look at benchmarks, you can look at averages, you can be like anchored to a particular number. But actually, the best approach is to think very specifically about your scenario and your company and to like, you know, go through the process of figuring it out and actually like what you want to do.
standardize that process not standardize the outcomes if you see what I mean. I think it’s a super interesting parallel.
Spela (1:03:06)
Mm-hmm. Yes.
And I think a lot of our clients are going through like synthetic valuations right now. So I wonder if we could have a conversation outside of this conversation about how do we help our clients arrive at reasonable valuations that are not just what you said in the beginning, which is 10 X on ARR. Now it’s 10 X on double the ARR because we grew.
Dan Gray (1:03:32)
for sure.
Daniel Faloppa (1:03:32)
Definitely. Work in progress. The two words are touching. this was super interesting and I think super in-depth. And even though there is still so much to understand, I think at least for me, but I think for most founders in Europe, but everywhere. So this is just, I think it’s just the beginning. I feel it’s just the beginning. So thank you very much for talking to us today and we talk to you next time.
Spela (1:03:57)
Yeah, very, very happy to talk about equity anytime. It’s a high interest of mine. It tells a lot about a company, a lot about people, how they treat equity, where they put it, what terms they put on it. So it’s kind of like an insight into the soul of the company if you look at what they’re doing with equity. So I’m happy to talk with anyone.
Any young founder, you don’t have to pay me to talk to you about equity. That’s the passion level there.
Dan Gray (1:04:26)
very nice to speak to someone else of that perspective as well because I think we both feel the same and it can be lonely sometimes. There’s not that many of us out there.
Daniel Faloppa (1:04:33)
You
Spela (1:04:33)
Yes, yes.
Amazing. Thank you for having me.
Daniel Faloppa (1:04:36)
Awesome. Thank you, everyone.
All right.
Dan Gray (1:04:39)
Thanks
a lot for joining us.