Dear Pomelo, what happens if I leave before my options are vested?

So you have received an offer from a new company trying to allure you with a more fancy job title? Or are you thinking about quitting your job to do your yoga teaching course in India? Before you consider jumping ship or changing direction you may want to grab a cuppa and spend five minutes reading what I have to say, believe me when I say this could be the most valuable 5 minutes you spend this year, and yes, you can thank me later.

Lesson number 1 the grass is not always greener. When you are considering leaving a job there are a number of things you need to think about. What happens with my pension? Does the new company have the same benefits I currently receive (we get it, unlimited leave and being able to work from anywhere for 90 days is important!). If you have been lucky enough to receive options the biggest and often most overlooked consideration is what happens to my options? Lucky for you, below are the three main considerations you need to think about if you are leaving your start-up before your options have vested.

Receiving an options scheme is a great perk of working for a fast growing start-up or scale up. Options vest over time, meaning that as you continue to work for your start-up the number of options you are able to convert into shares increases. Typically it takes 5 years for all of your options to vest and any unvested options have no value, meaning they are not legally yours to convert to shares. In other words, if you have a 5 year vesting schedule and you have not reached your 5 year mark, you are leaving options on the table (which is basically the same as leaving money on the table). Only a fool would leave money on the table and I am guessing you are no fool, therefore I suggest you go back and re-read your options scheme and understand your vesting schedule. If you haven’t reached the end of your vesting period you are not taking the full slice of the pie you could be entitled to which you should consider when making your decision.

There are two main types of employee equity schemes in start-ups or scale up companies employees typically receive, being either time or exit based. We delve into the details of the two different types of schemes here but the main difference is an exit event (i.e. a sale, IPO, capital raise) needs to occur for options to vest if you have an exit only equity scheme. If you have an exit only equity scheme and no exit event has occurred you can not exercise your options. This means even if your options have fully vested because you have stayed for your whole vesting period (congratulations) but no exit event has occurred you technically can not convert your options into shares and therefore you will be walking away from your right to be a shareholder of your start-up.

The last thing to check is whether your employee equity scheme has a good leaver / bad leaver clause. A good / bad leaver clause is often included in an options scheme to protect start-ups from giving away equity to employees who turn out to be a bad hire. The broad definition of a bad leaver is anyone who is fired or breaches their contract. All other leavers are usually considered good leavers but often this needs management or board approval. Bad leavers are typically not allowed to exercise their options whereas good leavers can. Check to see whether your options agreement contains this clause, if it does you may want to check with management and see what has happened to other employees who have left.

Now that you have got to the end of this, are you realising the grass is not always greener and that new title or your dream of becoming a yogi may need to wait for a little bit longer? Regardless of your decision, we at Pomelo think the most important thing is that you are educated and informed about your decision and make the best choice for you. If you still are confused or have questions why don’t you message us, we are here to help you maximise your equity and ensure you make the right decisions.