After a Happy Ending — Help Handling Options
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Entrepreneurs & Angels — Perfect Together
One important function of a venture fair is to give
entrepreneurs and investors a chance to get to know each other. Many
angels and venture capitalists put respect for management at the top
of their list of requirements, but rarely do entrepreneurs —
desperate
for money — question how their personalities are going to
"fit"
with the personalities of their prospective investors. Sometimes the
resulting tensions can cause problems. This was the case when Michael
Cooper invested in Make Us An Offer (U.S. 1, March 1)
(http://www.princetoninfo.com/200003/00301c01.html)
One Venture Fair participant responded to that story:
"As an entrepreneur seeking angel funding, I’ll be sure to do
some due diligence on potential investors, though in the rush to pay
bills and get moving, this is probably a step entrepreneurs don’t
spend enough time on, especially if the investor is a referral from
a trusted source.
"As far as paying an angel investor a consulting fee, I think
many entrepreneurs wouldn’t mind as long as the expertise complements
their core competencies. Like most entrepreneurs I’ve met, my company
is looking for investors who bring active advice, contacts, and
credibility
to their operation — as long as they can keep their own vision
intact.
"After reading your article I guess we’re not living in the real
world yet and are probably in for a couple of major realizations as
our business expands."
— Barbara Fox
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After a Happy Ending — Help Handling Options
After the IPO, then what? One of the exhibitors, Garo
Doranian of AST Stock Plan Inc., hopes to line up as clients some
of these companies that are paying their employees partly with stock
options. His three-year-old firm offers away to outsource the administration
of stock options, which can be a headache for a small firm.
URI Kaufthal is the CEO of AST Stock Plan, which has offices in Manhattan
at 250 Broadway (212-659-2221, http://www.aststockplan.com).
AST Stock Plan is a sister company to American Stock Transfer Trust,
a transfer agent that holds the records of the shares for more than
4,000 public companies.
Theoretically a company can keep all its own records to administer
stock option plans and keep its employees happy, but that could be
both tedious and costly, says Doranian. "You have to know the
compliance issues with the ever-changing rules of IRS, the SEC, and
the FASB (Financial Accounting Standards Board) as to who gets what
shares. Each option becomes available on a vesting schedule that is
difficult to track," he says. To manage this a company will need
to license some software system for $15,000 to $25,000 per year, plus
the cost of labor. AST’s software, in contrast, lets it track thousands
of plans and achieve economies of scale.
"We are like the hub in the wheel of stock plan administration,"
says Doranian, who is a 1996 graduate of California State University
at Fresno. "The spokes are each department. We interact with payroll
to pay out the options. With legal, to keep on top of all securities
issues. With brokers trading the shares. With transfer agents that
our are clients are using — to make sure at the end of the day
that everything in the wheel of stock administration rolls smoothly."
— Barbara Fox
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