The Gap Table: Navigating Your Cap Table and Closing the Gender Gap in Equity Compensation

Transcript

1. THE GAP TABLE Navigating your cap table and closing the gender gap in equity compensation
3. TO CLOSE THE GAP, YOU NEED TO UNDERSTAND YOUR CAP TABLE
4. • A capitalization table is a list of all the securities your company has issued and who owns them • It’s the source of truth for all equity transactions • To start, a cap table typically includes just the founders Cap tables start off simple...
5. • The cap table must be updated with each angel investment, funding round, employee option grant, option exercise, etc. • Each new round results in dilution But gets complicated quickly
6. Valuing equity is complicated Which is one reason why employees, founders, and even investors haven’t been able to historically report on equity or understand biases in equity compensation.
7. Understanding the value of equity • Pre-money valuation: Negotiated between the company and investors, based on how much they think the company is worth today before fundraising • Post-money valuation: The value of the company after a round of financing is complete
9. CALCULATING VALUE OF EMPLOYEE EQUITY
10. Figuring out the value of equity CURRENT VALUE OF STOCK — STRIKE PRICE _________________________________ = VALUE OF OPTION • When making offers, we suggest using the most recent preferred price as a proxy for current value • For our gap table study, we used current FMV, which is the current strike price set by the latest 409A valuation
11. • Strike price, or FMV, is how much an option holder must pay to exercise an option • It must be updated every year or every time there is a material event, like a fundraising 409A valuations determine FMV or strike price
12. Our offer letter
13. UNDERSTANDING THE GAP TABLE
14. Compensation is more than just salary Carta has aggregated equity data for 25% of US VC-backed companies, so we partnered with #ANGELS in 2018 on the most comprehensive study of equity compensation by gender.
15. Quick notes on methodology 1. Common stock FMV - strike price = value of an option 2. Names matched using U.S. Social Security database** 3. Study included 180,000 employees, 6,000+ companies, and 15,000+ founders *Total equity value is likely understated using this method,, but we were more interested in % than value **13.6% of the shareholders were removed because we could not match their names. We considered first names that were less than 85% associated with one gender too ambiguous to classify. We were limited to male and female given this data set, we’d like to include non-binary in future research.
16. Female employees own $.47 for every $1 male employees own
17. Female founders own $.39 for every $1 male employees own
18. How did we get to less than 50 cents on the dollar? 1. Engineers get more equity, engineers are typically men 2. Execs and investors get more equity, execs and leaders are typically men 3. Early employees get more equity, early employees are typically men
19. Only 29% of early employees are women
20. Future studies ETHNICITY TENURE JOB TITLE INVESTORS
21. CLOSING THE GAP
22. It’s not enough to get women & URMs on cap tables... We need to remove bias and make sure women and URM on the cap table are compensated equally.
23. Here’s what you can do... EDUCATE START EARLY EQUITY LEVELING SUPPORT EACH OTHER
24. “When I started Carta I didn’t focus on diversity...Then we hit our growth phase and went from 20 employees to 400 in 48 months. I assumed diversity would happen on its own. Of course it didn’t. I didn’t realize how much deliberate focus it takes. I do now.” Henry Ward, Carta CEO Women on Cap Tables Closing the gap “Proactively talk about your equity and compensation with women and URMs so they can better negotiate for parity....share and talk about your company’s gap table.” #ANGELS Silicon Valley’s Equity Gap: Women Own Just 9%
25. “They called on CEOs and founders to power a movement: Hire women from day one. Raise money from female investors. Measure, disclose and fix your cap table. We did all 3 and are here to tell you it isn’t very hard.” Winnie Blog Winnie, wealth, and women: gender diversity on our cap table  Closing the gap “If you have lumpy compensation for the reason most startups do—you were moving fast without having firm rules around comp—announce at your all hands that you're aware of this… Encourage your employees to ask questions about their compensation publicly” Jana Rich, Founder, Rich Talent Group Here's How Women and Startups Can Accelerate Pay Equity in Tech
26. 3 tactical things founders can do now 1. Analyze your own “gap table” 2. Create equity levels 3. Educate your employees and potential employees about how equity works
27. APPENDIX: HOW TO ANALYZE YOUR GAP TABLE & CREATE EQUITY LEVELS
28. Analyze your own “gap table”
29. How to analyze your own “gap table” 1. Export your cap table to Excel, make sure you have columns for current FMV, exercise price, # options granted 2. Add columns for gender, ethnicity, job title or any other information you have available 3. For each employee, use the formula: Current Value = (Current FMV - Exercise Price) * Number of Options Granted 4. Sum the current value by gender, calculate percentage Instructions for Carta users Example spreadsheet
30. Create equity levels ASAP At Carta, we completely revamped our compensation strategy and issued over $8 million in additional employee equity in late 2018.
31. Pre fix-it grants
32. Post fix-it grants
33. How to create levels 1. Get benchmark data (we used Radford) 2. Define everyone’s job at your organization and establish levels for each job family company-wide 3. You may need to add levels to the market data you purchased 4. Assign every employee a level 5. Select a percentile to use as an equity benchmark for each level* 6. Issue fix it grants for employees that don’t hit the benchmark for their level 7. When employees come in above the benchmark and keep that in mind when issuing refresh shares in the future *Note: At Carta, we used the 50th percentile, but this depends on size, stage, trajectory, and option pool
34. • We have more levels for each role than Radford • We target an equity notional value, based on our latest preferred price • Earlier on, you may choose to target an ownership % instead of notional value What levels look like
35. • Educate your employees on how to evaluate equity offers and think about equity • Offer letter template from Carta Better offer letter
36. Gap Table Posts • The Gap Table: our complete study • Women on Cap Tables: on our CEO Henry’s Medium • Silicon Valley’s Equity Gap: Women Own Just 9%: #ANGELS gap table post From the Carta Blog • A Better Offer Letter: a template to help employees understand total compensation • The Life of a Cap Table: to understand dilution • Broken Cap Tables: why it’s important to get your cap table out of a spreadsheet asap • Investors vs. Employees: Option pool data from Carta in 2017 Other Articles on Equity Compensation • A Counterintuitive System for Startup Compensation: First Round • What Drives the Gender Gap in Startup Equity Funding?: Evidence From The Startup Game, SSRN, Valentina Assenova, Ethan R. Mollick • Here's How Women and Startups Can Accelerate Pay Equity in Tech, FirstRound, Jana Rich Reference materials
38. LET’S CLOSE THE GAP @EMILYKRAMER | @CARTAINC | #THEGAPTABLE