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.
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.
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: ESOP terms cheat sheet
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.
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):
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.
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.
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:
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.
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:
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.
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.
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.