Issue Equity & Options Pool

Founder share purchase process and the establishment of the company's options pool, including how both are sized and structured.

Founder Share Purchase

Founders are recommended to purchase (for a nominal amount) common shares in OCV companies instead of receiving options. This is, however, dependent on each founder’s personal tax situation. It is advised for founders to seek tax counsel from professionals who are experts in working with founder equity in venture-backed startups.

When a company issues common stock, it sells ownership stakes in the company differently than it would to investors. The price of purchasing common stock is nominal for the company’s founders but may change over time with employees (see 409A Valuation).

The wiring of funds to execute the share purchase agreement needs to be completed before OCV SAFE funding.

See Visa Sponsorship if work visa transfers are required.

83(b) Election

OCV team will confirm the common share purchase is complete and email the founder to start this next step. Filing an IRS 83(b) Election is extremely crucial for founders and the company. Failing to do so has significant tax implications to both.

83(b) elections are required to be filed only if/when:

1. A stockholder purchases common stock subject to vesting (i.e., typical OCV founder shares issued during the company formation stage); or

2. if an option holder early exercises an option that is subject to vesting.

83b Election form needs to be completed by the founders and sent to the IRS (via certified mail with return receipt) or submitted electronically on the IRS website within 30 days of the effective date of the stock purchase agreement (the date wires are sent). When filling out the 83(b) form, it will ask what date the shares were transferred to the founder — this is the same date the founder purchased their shares.

For electronic filing, create a profile on the IRS.gov website, and fill out Form 15620, i.e. Section 83(b) Election, using information provided in your 83(b) document. Once complete, take a screenshot of the submission completion page as evidence of the date, though the form is instantly transmitted.

For physical mail, while digital signatures are accepted by the IRS, OCV recommends printing and completing the form with a wet signature to remain compliant regardless of any IRS process changes.

A self-addressed return envelope needs to be included as well. As part of the company formation process, the Legal Team will provide the latest instructions and template form for 83(b) Election. For non-US founders, OCV will assist with creating a FedEx return label to be included with the self-addressed return envelope.

The appropriate IRS office to send the election to can be found at the IRS website (those with no payment enclosed). Non-US founders should use the following address:

Department of the Treasury Internal Revenue Service Austin, TX 73301-0215 USA

To document the completion of this process, founders must provide the following three items to the company’s legal team via e-mail:

1. A copy of the completed election form

2. Proof of certified mail sent to the IRS (such as a photo of a receipt with tracking number), postmarked within the 30-day deadline

3. Proof of a self-addressed return envelope from the IRS

Stock Options

Options give the holder the right to buy common stock at a specified price for a certain period of time and may be used as a form of compensation for employees and advisors. Though options are a right to buy common stock, they are not the same as actual shares of stock.

Common shares are reserved for founders, employees, and other stakeholders.

Establish Options Pool

Each company will establish an options pool for employee equity grants. The size of the initial pool depends on the Day 1 team composition of the company. To prevent unintended dilution prior to the next capital raise, our goal is to reserve a sufficient allocation for all required hires (including executive roles).

Typical size of options pool at an OCV company is 20%, consisting of 10%-15% for future CEO reserve and rest for employees.

Following conventional venture practice, the options pool will reset with each additional round of financing. The size of the new options pool at the Seed round depends on the founding team, future investor, and OCV inputs.