ESOP (Employee Stock Option Plan)

An ESOP (Employee Stock Option Plan) is an employee participation programme that gives staff the opportunity to share in the economic success of the company through options or virtual shares. Employees receive the right to acquire shares at a fixed price or to receive a corresponding payout in the event of an exit. In Germany, virtual variants (VSOP) are frequently used.

The purpose lies in retaining and motivating key personnel: employees participate in the increase in value and thus pull in the same direction as the shareholders. For this, an option pool is reserved that comprises a certain percentage of the equity and is shown in the cap table. The allocation is regularly tied to vesting arrangements.

The size and effect of the option pool is negotiated in the term sheet, since it affects the dilution of all parties. Investors in venture capital typically require a pool of 10 to 15 percent. We structure ESOPs as part of startup financing.