Air is committed to making all full-time employees equity holders in our business. We recognize the risk our team has taken by choosing to work at an early-stage startup, and we want them to be invested in our success and compensated when the business grows.
Equity can be difficult to understand and value. This document aims to clarify how equity works at Air so employees can make informed personal financial decisions.
This document is a brief overview of how equity works at Air. It is by no means all-encompassing or legally binding. It's important that you read through your equity agreements, consult with your financial and legal advisors, do your own research, and ask questions.
Air offers equity to each full-time employee in the form of "options." The number of options an employee receives depends on their level of seniority, the stage of the business, and their risk tolerance when trading off cash compensation.
Employees are eligible to receive additional equity issuances in the event of a promotion or exceptional performance. These additional issuances are typically considered at each employee's anniversary with the company.
Terms to know
Our equity packages come with a few standard terms:
5-year monthly vesting - This means an employee has to work at Air for 5 years in order to be able to exercise their full options package. Each month they are employed, they "vest" an additional portion of their equity. For example, if an employee works at Air for 4 years, they will receive 80% of their options.
1-year cliff - This means that if an employee leaves Air within their first year of employment, they forfeit the right to exercise any of their options.
90 day post-termination exercise window - This means that an employee has 90 days to exercise their options after their employment with Air ends.
How options work
An option is the right to buy a stock at a fixed price. That price is usually the market value of the shares when they’re granted to you. This price is set by a 409A valuation and is often called your "strike price," or "exercise price."
Our most recent 409A valuation (as of August 28, 2020) set our common stock strike price at [XXX]. This means that in order to exercise 1 option at today's value (i.e. buy 1 share of stock), you would need to pay Air [XXX]. In most cases, this price becomes relevant when employees leave Air, because they then have 90 days to decide whether they want to exercise their vested options, or forfeit the right to buy their shares.
At Air, we offer Incentive Stock Options, or ISOs. Some startups offer NSOs or RSUs. You can read more about the differences between those here.
Estimating future value
Estimating the value of your equity is difficult because it depends on the future value of the company, which is unknown. However, if we assume 20% dilution per future fundraise, we can calculate a projected share price based on potential company valuations and required fundraises to get there.
There are a few ways in which startup employees can see liquidity from their equity:
Acquisition - In the event of a sale to another company, the acquirer will purchase all of Air's shares, typically with a combination of cash and stock in the acquirer. This is a common way for employee to see liquidity from their options packages. More on that here.
IPO - When a company goes public, employees and investors are able to sell their shares on the public market. There are often many nuances to when and how employees can sell their stock during an IPO. More on that here.
Private transactions - At late-stage private companies, there are a few ways employees can see liquidity before an acquisition or IPO. These transactions are typically facilitated by the company itself. More on that here.