How a Startup Can Make its Employees Millionaires

Work for equity. Does it work?

Corporations are often cast in a negative light based on greed and selfishness. “Corporate bosses” are thought to be callous money-makers who only care for themselves and their bank accounts. Although this may be true of many, not all  companies forget the little guy. In fact, there are some companies who value their “little” employees’ role in making them hugely successful. Sometimes, these companies go as far as making their  employees  millionaires, alongside founders and CEOs. MoPub, a startup that sold for $350 million, is one such company. 


MoPub: From Startup to Fortune 500


MoPub is a mobile ad network that enables real-time bidding for advertisers to claim ad space. The company was founded by Jim Payne, who was once a startup employee of a dot-com that was acquired. Payne knew how it felt to work hard for a financial success that only benefitted a small group. . 


Payne told Business Insider, “It was important to me that people who took a chance on MoPub would not only have a great outcome but that they would also have one that was significantly impactful to them and their future opportunities.”


And Payne certainly put his money where his mouth is. When MoPub was sold to Twitter in 2013 for $350 million, over one-third of MoPub employees became millionaires. 


MoPub Employees Work for Equity


Early on, MoPub Inc. outlined an Equity Incentive Plan for its employees. This plan kept three goals in mind:

  1. To attract and retain the best employees 

  2. To provide additional incentive

  3. To promote the success of the company


The company met these goals by offering performance-based stock option grants, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, and restricted stock units.


Performance-Based Stock Option Grants


With performance-based stock option plans, specific conditions must be met before the option holder realizes any value from the option. These conditions may be the company outperforming competitors or the share price exceeding a certain value above the grant price. MoPub met its specific condition when acquired by a social media giant. Employees who had invested in MoPub’s stock options were then able to cash in their relatively low-value MoPub stock for high-dollar Twitter stock. 


Long before making the deal, MoPub also maximized its stock option incentives by offering loans to its employees so they could exercise their options. The company gave its employees every opportunity to work for equity in the company.


Employee Stock Options: An Investment or a Gamble?


Employee Stock Options, also known as ESOPs, are sometimes considered more of a gamble than an investment, but most investments are a gamble. Sometimes, as was the case for MoPub employees, the gamble pays off in million-dollar dividends. 


As Rishabh Lawania, founder of Xeler8 said, “ESOPs were a lottery, are a lottery and will always remain a lottery. The only thing that’s gonna change in the nature of this lottery is the probability of one winning it.” 


What makes ESOPs more valuable than a state lotto ticket is the employee’s ability to impact the probability of winning. With stock options as an incentive, an employee’s hard work, creativity, and long-term dedication can drive the probability of winning higher and higher. When employees work for equity, they are betting on themselves and their company, not just the luck of the draw.


Equity Compensation for Startup Employees: A Win-Win Scenario


Startup employees often use equity compensation strategies to compensate for their lack of funds. Startups that lack cash may struggle to attract high-quality employees with salaries cut from a tight budget. By offering equity in the company, startups can offer shares in place of big weekly paychecks. Though these shares may be virtually valueless at first, they hold limitless potential. If the employees believe in their potential, they can help turn their shares into profits that far outweigh any salary paycheck. 


Startups like MoPub realize that hanging on to valueless shares is pointless if they never amount to anything. A hundred percent of zero is zero, but a handful of shares in a $350 million company is life-changing. By linking their employees’ success to their company’s success, startups increase their chances of success because they are all working toward the same big goal.


Startups and ESOPs


Performance-based stock options require patience and dedication on behalf of the employees. They must be willing to dig in and keep on digging until they reach their goal, although there’s always a chance they won’t reach it. While Jim Payne was a part of two successful startups, he was also an employee at a dot-com that went belly-up. Jim Payne’s persistence, however, paid off in the end for him and his employees.


Keywords: Startups, Startup Employees, Employee incentive plans, employee equity, valuation, Early-Stage startups
Startup Falcon . 2021-01-31