Spreadsheets are messy. Their functionality is limited to formulas. It's often impossible to tell when they were last updated — and by whom. And while cloud-based spreadsheets like Google Sheets have helped to ease this pain point, for Excel users there's still a constant question: Is cap_table_2022_version_2_use_this_version.xlsx the most up-to-date version? And the spreadsheet part is only a fraction of the real work. You have legal contracts, and employee offers letters, team culture aspects, tax and compliance reporting. The list goes on.
Why is anyone still managing their ESOP manually?
For many, it seems like the simplest option — the path of least resistance. But for a complex document like your cap table and employee stock option plan, a spreadsheet just doesn't cut it. You need ESOP management tools, software that's made just to meet the challenges startups face when creating, managing, and communicating their ESOP plans.
But new technology always comes with questions. What are the benefits to using ESOP management tools? Who can benefit the most? When is it time to invest in technology — and ditch spreadsheets for good?
We have answers to all of these questions and more — plus, the best ESOP management tools on the market today. Read on to learn all you need to know.
What Is Equity Management Software?
ESOP management software is a digital solution to managing your business's cap table and ESOP. These tools should help streamline the process of managing employee stock options, while making everything from grant letters to exercising to buyback plans consistent, transparent, and legally compliant for all members of the pool.
What Is an ESOP?
Before we dive into the software, let's take a step back and start here: What's an ESOP?
ESOP stands for Employee Stock Option Plan (sometimes also called an employee stock ownership plan or an employee share option plan). The best way to think of it is like you're slicing your company's equity like a cake. Founders, co-founders, advisors, and investors will get slices equivalent to how much of the company they own, with one slice being set aside for an ESOP. Then, employees and contractors have the opportunity to gain equity in the company by acquiring a portion of the ESOP pool (like taking bites out of the ESOP slice of the cake).
Learn more: Equity glossary
Typically, an ESOP allows employees to gain equity through options, which come with vesting schedules and other rules laid out in the offer letter. If employees follow the schedule and all required rules, they can exercise their options and turn them into shares in the company, which gives them a small amount of equity.
ESOPs allow companies to pay equity compensation to their employees, which can help attract top talent without a huge budget (or cash liquidity) for high salaries. It's also a simpler process (from a paperwork and tax filing standpoint) than giving stocks to employees directly.
Who Uses ESOP Management Tools (and Why)?
ESOP management tools are used by all kinds of businesses — public and private companies from startups to enterprise. That's because creating and managing a cap table and ESOP is complex and time-consuming, with both financial and legal ramifications. Having the right software streamlines a complex job — plus, it ensures your ESOP is always legally compliant (one of the most complex parts of equity management).
The big benefits you should be getting from an ESOP or cap table management tool include (but are not limited to):
- Straight-forward cap table creation and management.
- Storage and signing for all documents related to your ESOP plan.
- A transparent, single source of truth for your cap table, equity percentages, vesting information, and anything else you, your employees, and other stakeholders might need to know about the company's equity plans.
And from a legal standpoint, ESOP management software can help ensure your company stays compliant with any regional regulations surrounding your equity plan. Doing due diligence, completing financial reporting, submitting audits, seeking regulatory approvals, doing annual valuations of your options — these are just some of the requirements (which can vary by where your company and employees are based) for a fully compliant ESOP. An ESOP management tool isn't a law firm, but it should offer tools that help ensure you fulfill whatever legal requirements apply to you, your investors, and your employees.
How To Know When You Need ESOP Management Software
We like to think of this question another way: When do you need an ESOP?
Some companies (especially small ones, like bootstrapped startups) try to manage their ESOPs manually at first, often using spreadsheets. But thanks to new ESOP management tools that make it both easy and affordable for even the most bootstrapped entrepreneurs to take advantage of digital solutions, our answer is: You need ESOP management software as soon as you need an ESOP.
So when is that? It'll be a bit different for every company. But your ESOP will help you attract and retain top talent, offer incentives to employees, and take advantage of tax benefits in many countries, which means an ESOP can benefit even a small, growth-stage startup. And you'll definitely want one set up before you sign on any investors — they often require an ESOP to be implemented to avoid dilution of their equity later on.
Key Features to Look for in Your ESOP Management Tools
Before we introduce the best ESOP management tools, let's talk about what we mean by "best" — the criteria by which we evaluated each of these tools.
We believe there are a few key features you need to look for in your ESOP management software. These are:
- Ease of use. It should be quick and easy to build your cap table and get started. Stakeholders should be able to easily navigate a dashboard that gives them all the crucial information they need about their equity, options, vesting schedules, and more. Steps should be streamlined and automated. Legal agreements should be simple and built in. Expert support should be on hand.
- Global focus. In today's digital world — especially post-pandemic — work is more globalized than it's ever been. A lot of ESOP management tools are focused on specific countries or regions, which can be limiting for companies with remote workers or those that want to open up their hiring pool to talent from around the world.
- Affordability. Unfortunately, you can't pay for your ESOP management tools with stock options. Many companies that need this kind of technology are small and cash-strapped while they direct resources toward growth. Having the right software shouldn't interfere with that — it needs to be affordable.
9 ESOP Management Tools to Consider
With those key features in mind, these are the ESOP management tools you'll likely see in your search, and which are worth your consideration.
The #1 ESOP Management Tool for Startups: Cake
Cake has a mission: To make it fast and simple to give equity to employees. It's also the only ESOP management tool on this list that nails all three key features.
Ease of use
Cake allows you to set up your cap table and send your first offer letter in just three steps. All you have to do is:
- Choose a percentage you'd like to share.
- Distribute options among your employees.
- Send out offer letters and get contracts signed, all within the platform.
If you already have a cap table, whether it lives in another kind of software or a spreadsheet, you can import it — and we'll help you set it up to make sure it's perfect (for free!).
The ESOP management tool industry is often slowed down by enterprise products with long sales cycles. Not Cake. You can sign up and build your cap table today for free.
Cake allows for simple, streamlined, and transparent ESOP management. It features a clean, easy-to-navigate dashboard, document storage, and signing, all in one place. It's also a single source of truth that's based in the cloud. No matter who needs to access their equity plan, they can always know they're getting the most accurate, up-to-date information with Cake.
Cake is the only ESOP management tool that's truly global. It's flexible enough to work anywhere in the world, while also handling legal, compliance, and tax matters for any country or region. What does that mean for you? No matter where you're based and no matter where your employees are based, Cake will make sure everyone's equity plans are compliant with all local laws and regulations.
Most ESOP management tools are geared toward enterprise companies, which makes them expensive. Not Cake — our freemium pricing model allows for up to five employees on your equity plan free of charge. Our cost for paid customers can be as low as ~$1,000 per year.
Streamlining your capital raise
As an added bonus, Cake does more than just manage your cap table and ESOP — it can also help you organize your next raise. Through Cake, you can send offers to investors, store documents, sign paperwork digitally, and access legal help to ensure your raise documents are compliant. It's all cloud-based, fast, and easy. A piece of cake, if you will.
Cake is the only ESOP management tool that's built by founders for founders. Find out how you can share your company's equity — while keeping ESOP management easy as pie.
- Ease of use: Meant for enterprise use, which makes it a more complex product. Not only do you have to speak to a sales team before you can get started — Carta is also difficult to set up and navigate, making it not ideal for startups.
- Global focus: Available in multiple countries (the U.S., Singapore, the U.K., and Australia, just to name a few), but more deeply established in the regulatory, legal, and tax systems in the U.S. Simply put, Carta isn't as flexible — if you're outside of the regions where it's currently available, it may not be the most helpful software for you.
- Affordability: Expensive.
LTSE Equity (formerly CapTable.io)
- Ease of use: Straightforward, with self- or assisted onboarding available.
- Global focus: Only available in the U.S.
- Affordability: More expensive than many other options.
- Ease of use: Straightforward and easy-to-use, with helpful features like a built-in equity calculator to convert percentages to monetary amounts.
- Global focus: Only available in the U.S.
- Affordability: More expensive (to get started and to grow) than other options.
- Ease of use: Geared toward enterprise companies, and requires talking to sales to get started.
- Global focus: Available globally.
- Affordability: No prices listed.
- Ease of use: Relatively straight-forward for self-onboarding. Assisted onboarding is available at an additional cost, which isn't listed.
- Global focus: Only available in New Zealand.
- Affordability: Affordable base plans, but with added costs for certain features.
- Ease of use: Straight-forward with self-onboarding.
- Global focus: Only available in the U.K.
- Affordability: 7-day free trial available, but after that, more expensive than many other options.
- Ease of use: More complex, with onboarding process that requires booking a demo and speaking to sales before getting started.
- Global focus: Only available in the EU.
- Affordability: More expensive to get started than many other options.
- Ease of use: Requires talking to sales to get started. More complex and time-consuming to set up.
- Global focus: Only available in the U.K.
- Affordability: More expensive than other options.
Only 1 ESOP Management Tool Makes Equity Management a Piece of Cake
There's only one ESOP management tool that's easy to use, truly global, and affordable for companies of all sizes: Cake.
But don't just take our word for it. Cake is easy and free to set up. Get started today.
This blog is designed and intended to provide general information in summary form on general topics. The material may not apply to all jurisdictions. The contents do not constitute legal, financial or tax advice. The contents is not intended to be a substitute for such advice and should not be relied upon as such. If you would like to chat with a lawyer, please get in touch and we can introduce you to one of our very friendly legal partners.