Why do we have employee equity at all?

Jason Atkins: Hey everyone, and welcome to Startup Equity Matters. The topic today is ‘Why do we have employee equity at all?’ Which is a fair question. 10 or 20% of our companies end up with our teams, so why are we doing this? What's it all about? I think it's an awesome topic. As you know, the enemy of Startup Equity Matters is the old school complicated contracts, out-of-date team equity, no one knows what they own. You know, it's just a big mess, big accounting, and legal bills, all that stuff. That's what we're here to try and avoid. How we do that is we bring on amazing guests to talk about their experiences and insights and how they've done it. That helps you guys to tackle this stuff as best as you can and make sure it's as valuable as possible. Today, we have the wonderful Beth Nevins from Developa all the way from London. Welcome, Beth.

Beth Nevins: Hi. Thanks, Jason, for having me.

Jason Atkins: I'm stoked to be talking to you today. You've got fantastic insights, people, and teams–the core of many great businesses. It's so hard to innovate and it's really hard to build a great team, so I'm excited to hear your experience in both building teams and how equity can be central to that. So welcome. Welcome again.

Beth Nevins: Awesome.

Jason Atkins: Tell us about Developa. How did you come tackling the people space this way with Developa?

Beth Nevins: Maybe I'll start with what we do and then I'll quickly go into how we ended up being and existing. So at Developa, we are a people and talent consultancy and what's unique about us is we've come from startups ourselves, so we've lived that experience that founders are going through different rounds and right from the beginning as well. There's three core areas that we focus and support founders on. One is, of course, candidates. We retain, search, and bring great talent in and raise that bar on the types of talent we want to bring into the company. This will segue later into part of that is negotiating offers where equity is an important part of that total compensation offer that you make to get great people. Then, as the business starts scaling, of course, we introduce people projects, where that's important to help the people experience, retain, engage and support performance. So some of the types of projects we may build and support startups with are things like leveling and benchmarking and total compensation philosophies. Again, equity is usually a hot topic and a big part of the discussion there and where that fits in in the whole. Also, we do a lot on performance and also things like onboarding and values workshops and so forth. Then the final thing we do, of course, segwaying off the performance piece is we do leadership coaching and we uniquely train founders on two key areas in a program. One is on hiring and the second one is on leading leaders. So we're quite full stack in how we operate and advise and get hands on with the teams there. And we have a sweet spot on where we add the most value and where we kind of sit in terms of where we've lived historically, operationally. And that's from the well-funded seed stage companies to sort of series C, so probably more the zero to 500 headcount sort of arena. That's within tech startups, and we're quite geography-agnostic of where we work. I mean, clearly, I've done it. So that's why I'm useful, but I started off as an agency. I started off as an agency recruiter for my sins, but I loved it. I was a proper hustler. I started working with co-founders straight away because that recruitment agency was unique and valuable to me, looking back, because it only specialized in recruiting for startups. So I was exposed to co-founders and startup life from a very, very early age outside of uni, and then eventually transitioned internally. So I was reporting directly to those same types of founders and building those startups from pretty much zero to one, right the way through to later stage rounds and commercial expansion. So I've seen a lot consequently. Hopefully, that means I'm useful to founders and startups ever since.

Jason Atkins: Oh, totally. Like finding people, finding the right people, building teams. It's like one of the top couple of things that needs to be done. I mean, you've got to find a product and you've got to build a great team. We're fortunate at Cake, obviously. I mean, it's my opinion, but we've got such a great team. We've been able to do this really well. What would you say, in the seed stage, are the bigger sort of people problems that teams tackle, and how does that differ from, say, sort of Series A and Series B? Because there'll be a lot of founders here that are sort of seed and growing into Series A.

Beth Nevins: Yeah, so just a problem is like when things go wrong, from a people perspective, it's either to be frank early on or you can have co-founder fallout. Like a co-founder might leave, honestly, like I've seen, I've devised quite a lot of this sporadically, and that's usually just because of misalignment on goals and how perception of understanding really what it takes.

Jason Atkins: How do you solve that? What's the sort of good ways to solve that?

Beth Nevins: I mean, admittedly, where I've come in and advised is one, recently, one had left. So I was helping the co-founder, now a solo founder. Thinking about, “Okay, how do we buffer them?” What we actually need to build this project to support them based on their skill sets. So if they're just purely commercial, then clearly, we need someone very strong technically to build the thing for MVP. That's the first thing we need to look at and what their strengths were. Then the other side is when someone's telling me they want to look for a co-founder, again, this isn't my area of expertise full time, but I will still support, is going through the questions with them, telling them these stories and the lessons learned. So like, what are your values? What are their expectations of what the next 10 years plus commitment looks like? Are they a serial entrepreneur that wants a fast exit? Or are they someone where really this is going to be their baby. And you tend to get that more first time founders where they want to live and die and go down with the ship if things don't work till the very end. So you know, you've got to have those really honest conversations and their expectations where that one founder in the first story I mentioned had left. Genuinely, the CEO co-founder was telling me who remained because that other co-founder thought he could build that company while spending half the week traveling all around the world and hiking up mountains and stuff. Genuinely. So, unfortunately, that would be lovely. That would be great.

Jason Atkins: I wish I was that talented.

Beth Nevins: It can work if you're a solopreneur, and I think that's a very different thing, but if you are building a venture capital-backed business, it's unlikely that is going to work. So that was interesting. And the other thing where a people problem comes in very early on will be what I call stage-fit misalignment. So if hires early on in the founding team don't work out, 9 times out of 10, it's very rarely resources or not even necessarily capability. Often they're not capable because they haven't understood the zero to one mentality and the fit that's required. And that's because those candidates who come in early haven't been used to delivering the same outcomes that they might have done in later stage companies, but with nothing. You've got to deliver all the same stuff than other competitors might be doing or other companies and expectations wise, but with all the constraints. All the constraints and no resources. You've got limited  money, limited people, limited tools, so a lot of people sink or swim in that if they aren't used to that or just don't have that right mentality to thrive in that type of environment.

Jason Atkins: Yeah, that's super interesting. That was going to be one of my questions. How does it work? One of the things I think we did well was around the seed stage when we hired a chief product officer and a chief marketing officer, which we decided to bring in great people that were sort of series B plus and get them in early and then help them sort of scale the company. I have a bit of a theory around zero to one which is kind of generalists and then one plus needs to be specialists. How do you sort of see when it works to bring in those quite experienced people and how businesses can make that successful? Any insights on that?

Beth Nevins: Yeah. So look, there's a few things. I think bringing in some heavy hitters earlier. What would be the argent for that? I think if you have got a very, very seasoned team that can genuinely help with investment arguably, right, in terms of investor attractions, so forth, because there's some confidence that there are people who may have done it before and so forth, and you're treating them in the similar way of almost co-founders, but without perhaps the title and so forth. So there is some value in that, providing those same C-suite people, as I mentioned, can do everything, and they're not just pure strategists. They really are happy to be individual contributors early on, and the business model may require very early on, if you're well funded at seed as well, it may require you to have people who have got the per degree of larger companies, and to articulate that better, what I mean is, let's say you are a fintech or a banking company or in a very regulated environment. The customer demographic to even perhaps when your first customer or, talking to that market and in certain countries may require. Quite experienced people right in front of them to get that initial, even to get that initial traction. But if you are then building a direct to conser product or a B2C app, it may not be required that you need those heavy hitters so early on, and you can preserve those titles. The sort of equity and so forth for you know more likely a series A. So the general rule is it's usually a co-founders and then several high-end individual contributors and then you expand that C-level title and that C-level team more likely at a series A when you've got that initial sort of traction but there's no one-size-fits-all. It really does depend on the nuance of what the business is trying to do and where how much they've raised and how fast they can sort of spin up initially or are.

Jason Atkins: Yeah, totally makes sense. You've got to be able to get their hands dirty and get in and get things done and do a lot of things if you're going to have those senior people coming in early. Our idea was that would then help them build the team because what we're trying to avoid was hiring a bunch of people and then having to hire in senior people. Then, they haven't got their own team and they haven't had a chance to build that team, and then, you've got friction a year or two down the track. So we sort of decided just to twist that a little bit, which was more costly upfront, but we thought in the longterm, would benefit. So that was some of the thinking that we had.

Beth Nevins: That is true. I think generally, well, true in theory. So for example, it depends on your company. If you just need engineers to build something and you've got a technical co-founder, then the idea, to be honest, early on, is that the co-founders are the functional leaders so you can afford to have individual contributors. Then you get to series a, where you're going to expand the functions where you might then need heavy investment in marketing all of a sudden. That's a dedicated unit like rev ops or business development or sales as an actual function then that you need it's lower risk than if you've got a couple of junior or individual contributors to place someone on top because they're not going to be inheriting seven, eight, or ten people. They may only inherit one or two. And if you've done a good job with your bar at the individual contributor level at seed, they should be good, you know, really good talent. That said, regardless, the talent that's often attracted at seed. Already a sizable portion of that in my experience do still struggle to retain and want to stay on even at series A if you're moving very fast and you've got high traction because they like the no process and the interaction with founders and they really don't like it when they've got a leader on top regardless and there's more process coming in. Those that do carry on in that transition from seed to series A tend to have the scalability to go on to the next round, but there are always inflection points where hires are aware if they've been in multiple startups of their sweet spot of where they tend to prefer to sit. And again, we'll talk about that in retention of equity. But while our retention strategy for startups is to retain people, the harsh  commercial reality of that is that's offset sometimes by realistically certain people are best suited at certain periods of time within the startup and don't always scale at the rate of the company's growth.

Jason Atkins: Awesome. It's very clear how valuable you can be for founders, especially first time founders. You've got a seed round and you need to hire your team correctly.  There's just so many variables. So yeah, wonderful insight there. Let's tackle some of these equity-related questions with these roles. I mean, just say, for example, you are a solo founder and you need to get a couple of critical hires in around seed, how do you see the equity part of these packages working? What works? What are you saying?

Beth Nevins: So first of all, I would say I'm not a co-founder expert in terms of matching those things up, although I advise on it. I read Carta's recent report saying that co-founder equity is really squiffy these days. It's actually not very balanced, so that can also cause problems. That's a separate conversation. But if you are building a founding team, I think the thing that you need to be clued up on then is–and that's a big question any founder, whether you're solo or any co-founder will ask me is like, how do we think about our allocations? And the general rule is, as you've quite rightly mentioned, from founding team versus a series B or series C will look different. So the general rule of course is, what's the logic here? If it's higher risk and the valuation is lower, we're likely to make a bigger grant here to your founding team member and that's likely to decrease over time when the risk is less and the valuation goes up to later employees. So that's like the general rule of how we think about it. And then the second thing you sit with founders and discuss with them is, like, what is our philosophy here in how we want to use and allocate equity? So do we want to give equity for all? And we believe that that's important in our values and our culture for everyone to have a piece of the pie? Or do we only want to give it to leadership? Or do you want to give it to just the founding team and first round and then not later on? So they're like the fundamental questions you would discuss on their general attitude.

Jason Atkins: What are you finding? What's the trend? Is it still, I mean, I think it's kind of like where everybody gets equity. The majority sort of case still, but how are you seeing it?

Beth Nevins: Yeah, so like in tech companies like UK and France, it's just a given like pretty much everyone gives equity to everybody. There are some others in Australia, of course. There are some that don't do that. I've seen the data and certain reports again, not through experience because I've pretty much been equity for all. But there are some apparently. The Netherlands is arguably on some data sets lower, arguably Germany as well, so that's interesting to look into.

Jason Atkins: The rules in Germany are so hard. Like it's just so much more difficult to technically issue it there for what I've seen.

Beth Nevins: Yeah, I think VSOP has recently changed. I think it changed in May. I'm not an expert on German allocations, but they've made it more advantageous and attractive now with some recent liftings on certain outcomes and provisions for employees there. But yeah, again, at least if you're hiring in Germany and you're hiring German employees, VSOP is so widely used there, it doesn't detract, they're just so used to that there so it's pretty much all encompassing. And then I think like the other thing with founders to be mindful of then is like there's two extremes I tend to find with founders in founding allocations and offers. It's like they either offer way too much and then you've got like an unattractive cap table. They haven't really understood the value exchange. Like, you know, they've got a very complicated business and they've offered a graduate X amount that may not really be in the right allocation distribution there. So it's really to understand the leveling that comes with that with a bit of common sense. Like the sort of percentages that we might offer, or the other way where I've had, and this has honestly happened in the last six, seven months where I had a founder needed to hire a founding engineer and had an idea of the benchmarks and so forth. Then, they didn't want to offer them that equity. And then you've got to really explain to them how important that is to a founding engineer, you have a tech business. It's understanding the absolute criticality of why you come back to the why we're even having equity then in the first place. That's just so important. What did you say? Yeah, I just said, I said, look, you know, these are the benchmarks, you're not a technical founder. So this is a critical hire to compliment you, you have the prerogative in the right as the founder, CEO to do whatever you like, that's not my problem, right? That's your company. But you know–

Jason Atkins: They're going to be getting offers with equity.

Beth Nevins: My job is to help you win. I will always put ego aside or whether some doses are out of joint by telling you that my value is the harsh truth on what will help you succeed, and I have to stand by that. So back and forth, the hire was made with the right level of equity. And the good thing now these days is it used to be a complete black box in terms of data and equity. Now, you've got VCs doing better data and reports out across their portfolios. You've got index ventures even with calculators on their website online for you to look at in terms of how to look at salary value in cash on different raises. However, definitions of seed and expectations have changed somewhat, so I don't know if that model needs a bit more refining, but looking at that, too and you've got great platforms like Carta or even compensation SasS products out there. Now, they're also doing a lot of benchmarking and reports, and are out there for you to use as well beyond looking at founders. So, there are quite a lot of resources now for founders to look into and upskill themselves on in terms of their fluency, in terms of, roughly at least, what to offer at different rounds.

Jason Atkins: Yeah, it makes it a lot easier. I think benchmarking is critical over the last few years for hiring and giving confidence in actually issuing equity, going back five, depending on what country you're in five or ten years issuing equity to a team was nearly impossible by the time you had your accountant meetings and your lawyer meetings, and you're trying to work out how much to give. It really was a bit hard, and everyone was just like, “we won't worry about it.” But through software, systems, and benchmarking, it's become totally achievable and not too tricky. Pretty much every tech company is doing it, so if you're not doing it, you're behind the eight ball. Some of the argents for not doing it might be like, “well, we just pay good salaries.” And I think there is some truth to the fact that some people just want cash. I think there is some truth to that. I would still advocate that equity is important. It's sort of like on top of a good salary in a lot of ways. I think when you're benchmarking, I think at seed stage, you can maybe offset the cash component with the equity, but then from about series A, it's really on top and it's a bonus, it's an extra incentive, but then you've got the retention benefits.

Beth Nevins: Yeah, no, I was gonna add to that, because I have strong views on this. I think the biggest issue you've got is when you're offering equity, as I mentioned earlier, and the employee on the other side doesn't value it, you have to understand if you're going to bother offering it. Your job as a founder is to build your fluency up on how to sell it and explain it. Part of my coaching is like, wowza. So here's a really good example. So a founder had offered a C-level, a percentage of something, and I checked the offer email that went out and they offered north of a percentage, fully diluted. So I was like, “Oh, dear, this is not good news to the board.” Because he didn't understand how to articulate dilution in that like high stake pressure negotiation on the phone with the candidate. I was like, “Oh, dear, we need to fix this.” So we fix that one way or the other. But moving forward, it's explaining and building a founder’s fluency to know their active role in selling, to explain what type of option or what type of equity, or stake they're offering. Also, understanding then how that can be valuable over time. How do you sell that story to the candidate? Share some success stories of other companies out there to know that it is actually true. Explain dilution and what that means. Julie's gonna get X amount, you've got X percentage now at C stage. The truth is, you know, later rounds could become diluted and be less of a stake of the pie and become maybe even less than half a percent. But that's offset because you've got 40k in cash value now. But as our valuation goes up, that could be worth say closer to a million at the same size, even though your size of the pie has gone down, and the reason it's gone down is we're issuing more shares over time to different investors and different people. So that's how you explain that to show that there's still value going up even though they understand that they are going to be diluted, and that's important. They know that they're being diluted when you get that. But I agree with you. What's the workaround then? I don't agree that early on, you should hire people who don't value equity at all personally because I think that's very important. I don't understand if you were going to take the risk early on, why you wouldn't care about the equity to be very frank. So you should 100% if you're going to give your sweat equity you want real equity in exchange. So that's very very important I think to people. But I appreciate people might want to join a startup and their circstances may mean that they need a bit more cash and so forth. But we have to be commercial with this. We need to preserve cash. That is also sensitive to a business. So how do we think about this? Well, early on, you could make two offers. So you could make within certain parameters a lower equity offer and higher cash, or you could make a higher equity offer, sorry, a higher cash offer and lower equity, and let them choose. Now you want to have some parameters around that, so you don't have massive variation of pay and then other claims and whatnot, but you're still trying to make sure total value of comp would still be similar to people, but they've just had different areas of how they've played in that and made the decision. And that can be useful.

Jason Atkins: But ultimately, it could be 10% equity or 20% equity of the whole package, and you sort of let them choose. It's still within a range, it's still reasonable.

Beth Nevins: Yeah. You know, but ultimately, I'm still a strong believer that equity should be a very important part of the value that people care about when they join a startup, certainly early on. 100%.

Jason Atkins: You know, you want the most talented people in the company, and these talented people want to get in the game. You know, that's a big part of why they do it. I mean, they can have a job, but they want to change the world. They want to have an impact. They want to be part of a team and they want to be part of the ownership structure. The best people want to be in there, having equity, like from day one.

Beth Nevins: And in my opinion, the best talent, to be very frank, in your first zero to probably 30 hires are people that aspire to be founders and probably could be founders, but they don't want to take that risk, so you want them to act like a founder. You do want multiple founder mentality early on, that entrepreneurial true spirit as close to you as possible that it gets. So you better be giving them some real skin in the game, as you mentioned.

Jason Atkins: Yeah. So, you know, just say for argent's sake, they're getting 50K a year, over four years, they're getting 200K worth of equity, which is like already a lot. But in early stage, you're doubling your value every year or two, so it's 200K, 400K, 800K. So in a matter of three or four years, they could be having a million in equity. Unbelievable. I mean, I know that it's probably slightly on the high end, but I mean, it's still a super meaningful amount of equity that they generate.

Beth Nevins: Yeah, I agree. And you can take that further. Right. Because you can then discuss with them during the interview process how performance conversations tie in with equity as well. So not only do they get their first offer, and their first what's called tranche, their first amount of equity. If they are a top performer, your philosophy could well be that we reissue additional equity on top. And to retain people, you want to be smart on your top performers, let's just say you have a vesting schedule, what that means is you don't give the whole amount of equity to someone when they start, it's time bound, so they get little incremental pieces as they serve time in the company before they get the whole, which is the point of retaining them. But let's say they get to half that vesting, half that time bound period, so they've got half the equity vested, it's at that point then beyond, they're probably going to have more than they've got left. So they may be a flight risk. So you also want to be smart in your retention strategy of monitoring who's halfway through their vesting schedules to start thinking, shall we be a bit more little and often now in terms of that strategy so they can get even more, over time in terms of the value they get and you can decide then in their new grants, do you want to include a cliff? And what that means is they have to stay for the first year or a period of time before they get any sort of value, or option vested or kept now for themselves. Or do you then at least then give them a shorter period? You give them a load of options, but that's a shorter vesting schedule compared to like their first offer that they may have had.

Jason Atkins: I like it. That's really smart. That's really smart. What about milestone based testing? Do you see that much? I mean, I think sometimes, it's time based, but you could also say, “Hey, if we could hit this milestone, there could be additional options.”

Beth Nevins: You can have performance based investing. It's less common. I'll be honest with you. Time-based is much more likely when you're looking at much more performance and milestones, you're probably looking at more of your classic LTIPS and corporations that the US have where that's all like milestone performance space. So that's a separate thing altogether, but I'm not an expert in the US LTIPS, but yeah, that's more performance oriented.

Jason Atkins: Yeah. Cool. Then, with retention, another thing I've found that's interesting that isn't always obvious, especially when you're starting out, is the fact that even though there may be two or three years through, and you do have that element of like, “Hey, I've earned a lot of my equity already, so it can be a little bit less of an incentive.” You've mentioned ways to incentivize them with new grants and re-upping, and that's cool. One thing I noticed as well is if the company value has gone up, say two or three or four times in that period, the dollar amount of equity that they're earning is like a lot. And if they leave and go to another company, they go back to the baseline again. So they're earning like a third or a quarter of the equity every year that they're earning with you. So I think it's to make sure you have a four year vesting period. I know it's pretty standard now, but I think that's why it's important to have that nice and long, because in that third and fourth year, the amount of equity they're earning, which was granted at the first year's valuation, can become a really nice retention strategy.

Beth Nevins: Yeah, I think there's that. And it comes back to, what do I want to say here, it comes back to also having a four-year because the market drives that because that's pretty standard so you want to be careful to compete with vesting schedules because sometimes I see like really long ones it's rare actually rather than sometimes. And I don't advise that because that can put people off, but if you also look at the average tenure, even in startups, it's like two years. That's my point. If they're really good and go back to another early stage or another company where they can get a better grant, you need to be mindful of still granting again within that four-year vesting schedule and topping them up in addition if they're really that good. But I agree with you. The four-year is important to have some sort of long-term parameter. That's the point of it. But anything beyond that, I think, you also need to be mindful. If you think of the inflection points in a business, funding rounds aren't like five years between each round. And if you're doing well as a company, the types of talent, as I said, and the types of people you need can really scale multiples of coming in at first stage to being like, still there, nine years later, and so forth? Who knows? Like, I care more about impact, to be honest, than tenure when it comes to performance, to be very frank, that's all I would care about. So having backloaded vesting and having six year vesting schedules is really probably incentivizing the wrong types of too long retention, to be honest. It's better to be smarter in my opinion. It's better to be smarter in my opinion with just top ups.

Jason Atkins: Totally makes sense. One thing you were saying before, which I loved, is just making sure that your team understands it and values it. I think this is the key to all of this. It's so easy to just think, “Oh, okay, there's equity and they're going to get it.” But from my experience, I mean, even onboarding at Cake, we have all these steps and processes and FAQs, and then, you'll have someone come in and say, “Oh, are you deducting my equity from my pay? Or like, do I have a tax problem?” It's just, there's so many ways for them to be confused. I mean, so we talked a bit about hiring and when you're hiring, that's a key moment because you need to talk about what it's worth and what it could be worth and the fact that the company really values it and they care about it and it's going to be protected on their behalf. What about the plan rules themselves and the way the scheme is set up? Do you find the team actually pay attention to that? Do they understand it? Is it a driver? Because from my perspective, These plan rules can be very company friendly and almost to the point where if you're like an employee reading it, you're like, “I don't even respect this because you can basically take mine off me at any time.” So how do you find that? Because it's quite important, but I feel like it's a bit unknown to the employees. Yeah.

Beth Nevins: So-so C-suite executives are more sensitive to this and they're very clued up on this if they are a seasoned C-suite executive. So and it goes even higher than this so like I've been privy to like what's called articles of association which is kind of like board governance and board agreements with founders and like it goes even as high as this in terms of like understanding where the where the employees sit as common shareholders because when the

Jason Atkins: It's really important stuff. People don't realize that that's actually the rules of how this whole thing is.

Beth Nevins: Yeah. So what this basically means for the audience is when the founders get a new investment, they'll sign what's called a term sheet, which has terms around this investment. And the key thing that will affect people on this is liquidation preference. So what that protects is the investors to get their money back if things don't necessarily go as planned or as a sale, but it's not quite where we wanted it to be. And what that means is investors will have parameters or clauses that state their priorities. So usually, they're the first to get their same money back at the event of some not as optimal circumstance. Then they'll have multiples. So they can also get 1x back. So basically the same money. Well, 1x isn't that bad. Oh, 1x is fine. Sorry. Yeah, of course, 1x is fine. If they want 2x back, that's arguably then where people start kicking off.

Jason Atkins: 2X makes it hard for team members or founders to really ever get anything. Like you have to hit a full home run in that case. I mean, maybe with two, you can make it, but like, yeah.

Beth Nevins: Just good to know this stuff.

Jason Atkins: Like are there multiples on the preference stack? How big is the preference stack? You know, what are the good levers and bad leaver provisions? All these sorts of things, yeah.

Beth Nevins: So on the preference, you'd also want to check again. Employees probably won't share all this but if you're a c-suite, they tend to have to, if you push, but are they  participating preference or non-participating, so non-participating will mean they get their bit back and their multiples and then the rest of the gets distributed to the common shareholders but the participating preference will mean they get all that the same as non-participating plus they get then a percentage share back in the remaining proceeds just like the rest of the common shareholders and that's the problem that's not always as friendly then to employee outcomes but on the share plan to add to your point. Yes, the main thing they want to be mindful of here is good leaver and bad leaver. So you don't want it completely up to the discretion of who's who, but employee friendly terms generally will say the following clause, not necessarily verbatim, but round about this. The employee will be deemed a good leaver unless they're called a bad leaver and a bad leaver is classified as for cause or doing something for cause. And then you list for cause, which means things like misconduct and a load of other things, why they would be deemed a bad leaver. But if you don't do those things, you're automatically deemed a good leaver if you leave. That's what you want to be seeing ideally.

Jason Atkins: Yeah, which then means you get to keep all your vested equity. So whatever you vest, you keep if you leave as a good leaver and then whatever's unvested, you lose and that's fine because you have invested it. And it can't really be taken off you unless you've done something wrong. I mean, that's pretty standard and that's kind of how it should be. But it's good to kind of know that stuff.

Beth Nevins: Yeah. Yeah. Yeah.

Jason Atkins: I just like to unpack that a little bit from time to time and just kind of bring these things out so people can be signing on to companies. And if you don't have that, I mean, it's just a little bit of a red flag. It's not necessarily saying, hey, like these leaders are a bit unscrupulous, but it's like they probably just haven't taken the time to get this right. And it's just something to think about. You probably want to work for a company that has, you know, just good, fair, we call it like protecting the company because the company does need it to protect them. It's like, “Hey, the company's got to control its equity in the case of an exit and in the case of a bad leaver and just keep its equity nice and tight and controlled is an important governance.” But at the same time, it needs to be employee friendly. And there is a nice balance there
.

Beth Nevins: Yeah, the only time I've seen this being a wider, deeper debate is if a founder transitions out and they're bringing this professional CEO in because that clause might need more parameters around it so that they may get a huge amount of value and money on their shares in the first year and then leave. And actually, you really do need to retain them for fundraising reasons or whatever that professional CEO, so that becomes a bit more complicated and how you discuss that clause in more detail for retention purposes, but that's the only time where that's a real problem.

Jason Atkins: That's a real all or nothing hire. So it's like, “Hey, buddy, you're going to deliver.” Yeah, totally. And then the last piece of this kind of equity story thing that we love to talk about, is about making sure people understand their equity is like treating them like an investor. Treat your team like investors. We love to teach our community about this. They are investors. They're on your cap table. They own a piece of the company, normally via options, but sometimes it's exercised into shares as well. And if they don't know what's going on, they're not going to value it, right?

Beth Nevins: Yeah. I love that and that's what I say to candidates, I love this because sometimes the candidate will go to me, well I've got a better offer from so-and-so's company down the road and all that and I say to them look you have to think like an investor, truly now if we look at everything which company do you think honestly is going to have the highest chance of making it? Based on all these other based on all these other things like have we got the best team have we got a product out there where is our traction compared to theirs because sometimes it doesn't mean that so-and-so's offer better down the line if their team and everything else doesn't actually work and it's not really in their favor so you have to be smart when you're a candidate you're making a bet too and be wise with that. Yeah, I love that.

Jason Atkins: I love that. And then ,from the founders’ perspective, it's like get in your all hands, update your team.

Beth Nevins: Yes.

Jason Atkins: Make sure they know what's going on. Talk about when the next raise is, talk about liquidity events, talk about potential dividends, like whatever's coming up that can incentivize your team around valuing their equity, understanding it, wanting to row all row together, you know, to make these milestones and outcomes happen. I think it's a wonderful driver for performance and yeah, just very motivating.

Beth Nevins: I agree. I think what you're saying here is like bake it into your culture and like your day-to-day communications and milestones and that in the business. And, but I randomly had to find a way to be like, “Oh, but you know what, if there's problems then, because employees are so fluid on these things, like, will that be problematic?” And then you end up in a discussion then, okay, well, what do you do in a crisis or a down route and so forth and work around that. So, in COVID, for example, when we were trying to preserve the runway, some companies out there decided to do salary sacrifice because they had to preserve rent way, but then they had the advantage of leveraging their options and equity to give them more in exchange for the salary that they sacrificed. That's a genius idea. So like, there are always ways that people will still value and want to stay in if you've built your culture around that. And also in a down round, what's the work around there? Well, maybe, you might have not qualified for things like in the UK, we have what's called EMI options, which is the most tax advantageous scheme you can have for employees, which I won't go into the granularities. But to qualify as a UK company for these types of share options, you have to be in certain parameters, for example, 250 people, 30 million in gross assets underneath that threshold and a few other bits and bobs. But if you are in a down round then at least you may actually re-qualify for some of those classifications again, so you might want to release people out of their existing type of options and then re-issue optiona then at the lower valuation that might better benefit people again in the long run.

Jason Atkins: Yeah. Amazing advice. I think starting with leadership and strategy and culture with this stuff is critical. And then it just flows through to a much more successful overall value creation from your team equity. And transparency is something that almost always works for the better your team is going to know if you're struggling. , I don't think you have to share everything because founders and executives and investors are very aware of all these things. And so we're not saying, “Hey, every little thing has to be shared because that's just not good communication.” And it's an important part of being a founder and executive to be able to understand how to nuance the communication, but being transparent and open is normally the better strategy, in my opinion. And your team's not stupid. If you're having difficulties, they're going to know. And the fact that you were open with them and transparent and you work through it with them is probably going to build trust.

Beth Nevins: I'm with you on that. I'm massively pro-transparency anyway, because it just makes life easier, to be honest, in my opinion. I think if you treat people like adults, they'll give more than go above and beyond on that front. So I think that's probably like… for me, one of the more important things for respect and performance in culture. But I appreciate there are varying spectrums on that in terms of founder perspectives on that.

Jason Atkins: Yeah, I'm gonna have to switch us off and move us along a bit. That was gold. That was just like pure gold for everyone listening. I'm so stoked with that. But just in the interest of time, let's talk about Developa. What's going on in 2024? What's the rest of the year look like? How's things shaping up? I'd love to learn a little bit more.

Beth Nevins: Thanks for asking. So we've actually done quite a lot of retained searches this year and coaching. But as I said, I'm building this program more specific to founders, narrowing the focus now from less on the more holistic coaching. I prefer to do more holistic advisory now and focus more on a program that doubles down on teaching them about hiring and on leading leaders. So I'm refining that now to scale that across the market later on in the year. So that's really what will be coming from us is more value added to our founder community on that front.

Jason Atkins: Yeah, amazing. Yeah, everyone check it out. I mean, building teams, as we talked about at the top, it's so critical. There's so much to learn. And we need experts around us as founders to move fast. You do need to be moving super fast. So absolutely. Highly recommend checking that out. Obviously, for those of you listening, what a powerhouse Beth is, so definitely get in touch. And look, we're going to finish on a question we normally finish on, which is about creative, healthy lifestyle. You were saying it's sunmer there in London, which I mean, London's not the easiest place to be outdoors and in nature and that kind of thing. But yeah, how do you sort of see that for yourself and the team with health as a driver of performance and creativity? Any insights for us?

Beth Nevins: I mean, this is a bit philosophical. I've got a lot of big journeys for me, to be honest because I built this company to work for me and my lifestyle. So I'm not a VC-backed founder, I'm on a different path in my life right now, although I help founders win in that space. So this company is to work for me and what I want out of it. And of course, the mission is around founders, too. That's why we exist. But there is a balance now that I've brought to my life consequently. The best book I've read and reread actually in the last year is the Four Hour Work Week by Tim Ferriss and what that book taught me more in the like solopreneur to very early small boutique team philosophy that we have is I now changed my lifestyle so I work in very intense sprints so that means I can take some serious time off then rather than like two days here or a week there but work extremely intensely over a quarter and then I can rest for a little bit or be very light touch then for a few weeks after that, and that's really worked well for my life to have like longer periods of rest but more intense sprints. Because I've learned my like my strength for me is like intensity over ridiculous periods of time, so I prefer to do that on a big sprint and then take some time off but also my strength and my floor has been super like rational analytical in terms of my personality type. So I've really enjoyed getting more into the spirituality side of things. And I know a lot of founders are also interested in that side, too. And that's what I want to start. Yeah, I want to start getting more into that in my next piece, like meditating and connecting more with human beings and connection. I'm speaking to a founder at the moment I went for a drink with last week. I'm not working with him actually, but he's extremely successful in the UK. And he's reading a book called Lost Connections right now, and he sends me photos of what he's reading in there and I think there's something to be said in that in terms of like what value can the people teams bring in the future because I think things are going to change quite significantly in the future and I think our value is going to be heart and connection. I think it's interesting because people teams have historically had to become more commercial but ironically, I think the value will come full circle the other way in terms of what we can bring in years to come.

Jason Atkins: That's really beautiful. What a great way to finish. Thank you for sharing that. That was amazing. I hope you're going somewhere hot and sunny on this time off.

Beth Nevins: Jason, I'm on my way to, nearer your neck of the woods, I'm going to Bali.

Jason Atkins: Amazing. You'll love it. So beautiful this time of year.

Beth Nevins: We'll get some great connection in. Send me recommendations. Oh yeah, totally.

Jason Atkins: Well, look, what a lovely way to finish. We all need to spend some time in
Bali and making better connections. So thanks, Beth, you're a legend. I'm so grateful for you joining.

Beth Nevins: Thank you so much, Jason. Thank you. See you, everyone. Bye.

Jason Atkins: Bye.