Restricted stock units make for a great equity grant and now they are easier then effer to grant in the Cake app.
What are restricted stock units?
Restricted stock units or RSUs are a form of equity grant that converts into company shares as soon as all vesting conditions are met.
Why use RSUs?
We usually see RSUs used as a form of employee incentivisation at later stage companies. This is often because RSUs don’t require an up front payment (which could be quite large if the company has a big valuation). They are also easily usable for both private and public companies which could leads to companies who are closer to an exit event choose to use them.
How are they different from Stock Options?
In many ways they are quite similar, but there is one key and very important difference. Stock options provide the right for the holder to purchase company shares once all of the vesting conditions have been met, however RSUs convert into those company shares automatically as soon as all vesting conditions are met.
Additionally. Options usually have a strike-price set against them where an employee would have to pay to exercise those options into shares, there is no such cost for an employee when an RSU automatically converts into a share.
Know more about the key differences between stock options vs. RSUs.
How are they different from RSAs?
They are so easy to mix up given there is one letter different in the acronyms but they are worlds apart in terms of equity types. As noted RSUs are converted from RSUs into shares once vesting conditions are met, however when an RSA is granted all of the shares are issued to the cap table right away. RSAs then have vesting conditions against them over time and often require cash up-front from your team to purchase.
Which should I choose?
As always it depends on your company, stage, size, location, and more. If you aren’t sure it’s best you consult with your attorney. We usually see our customers choose RSUs if they are later stage companies with bigger valuations considering an eventual public listing. It’s important to remember all of these equity grants have different tax implications on both your company and your employee, you should make sure you cover this off with your attorney or accountant before issuing.
Know more about restricted stock units, with insights from Matt Secrist, compensation and benefits expert at Taft Law.
Setting up RSUs in Cake
Head to the ‘Equity Plans’ section of the Cake app and hit ‘Add equity plan’, choose RSU and hey presto! Simply set aside a number of RSUs to allocate then hit create an offer and you can get drafting today!
What’s the low-down on vesting?
Vesting in Cake is, well, a piece of Cake. When you draft an offer it will pre-populate with our industry-standard vesting schedule. These are the most commonly used vesting conditions for incentivising employees and advisors in startups.
Optionally, hit ‘Custom’ and you can drag-and-drop your own schedule. Use a cliff, time based vesting or milestones to create the perfect incentive to motivate and retain your team. You can even save the schedule as a template and apply it next time you make an offer.
What is this ‘Double-triggered’ vesting?
Put simply, ‘Double-triggered’ vesting is when an equity offer (in this case an RSU) requires 2 vesting conditions to be met before they into a company share. Often we see this used where a company might set up a first trigger in Cake using a Cliff and Time-based vesting to motivate your team over time, while applying a second trigger such as an exit event (eg IPO or M&A) to fully vest the RSUs.
What contracts do I need?
This will depend on your jurisdiction and exactly how you want to set up your plan. Reach out today and we’ll set you up with one of our leading start-up partner attorneys to get everything sorted.
Simplify your equity plans with Cake
Cake removes the complexity out of offering equity, so you can focus on growing your startup.
Whether you want to offer stock options, RSAs, or RSUs, Cake's all-in-one equity platform is able to accommodate your unique requirements!
This article 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.