Manual, inflexible contract workflows can be a blocker to commercial growth – how do you make your option agreements scalable?
This deep dive explores option agreements in a scaleup, the problems that teams might face as the business grows and how to create a streamlined and scalable workflow. Use the menu to find out more, or explore our other contract deep dives, like NDAs and employment offer letters.
What’s an option agreement?
An option agreement is a contract that details a party’s right – though not an obligation – to buy an asset. The term ‘option agreement’ is used in many contexts. We most often see scaling options agreements discussed in the context of the contracts that startups and scaleups use to give share options to employees. For the issuing company, these agreements are a great way to align employee and business incentives. They also give the employees a stake in the company’s success.
Option agreements distribute equity, but in a limited way. A company might want its employees to have a degree of ownership, but it probably doesn’t want them to have voting rights or be able to exercise their options in the short term, for example. This is usually why options tend to come with vesting cliffs. Learn more about this in our venture capital jargon cheat sheet.
Companies might also choose to issue options rather than shares because of favourable tax treatment. In the US, this is achieved through the 409A valuation; in the UK, it’s the EMI scheme. Different jurisdictions have different approaches.
Who do option agreements affect?
Option agreements affect various stakeholders across the business.
The legal team usually owns the template, collaborating with external counsel when the employee option pool is created or changed.
The people team is responsible for distributing option agreements to new and current employees, and will work closely with legal to vary option arrangements from time to time as the business scales – this case study explains how.
The chief financial officer owns management of the cap table, so they’ll want to monitor the agreements closely.
The board of directors is focused on the specific details of ownership, especially when there’s a funding round on the horizon.
New joiners are issued options and existing employees might be granted additional option awards as they progress within the company.
Scaleups move fast. But as the commercial headcount skyrockets, the legal team doesn’t grow at the same rate
Why scale your option agreement workflow?
If you’re reaching agreement and getting signatures on the line, then does it matter if your contract process isn’t scalable? Well, scaling option agreements can help you avoid problems as your business continues to grow. Making your workflow scalable, and doing it early on, offers lots of benefits.
Save valuable time
As the business headcount increases, so do the number of option agreements that teams need to manage. A manual process that involves multiple systems isn’t going to cut it when you’re scaling from one agreement a month, to five, to fifty, to hundreds. You’ll soon reach the point where you don’t want – and can’t afford – to spend time negotiating internally, digging through signed hard copies or answering the same legal request over and over. By optimizing your workflow you can free up time and dedicate it to higher-value work.
Scaleups move fast. But as commercial headcount skyrockets, the legal team doesn’t grow at the same rate. The business might hire hundreds of salespeople, while the legal headcount might increase by just one or two. Without a scalable process for option agreements, legal teams can quickly get snowed under with low-value tasks. The solution? Use a contract collaboration platform and enable other teams to self-serve. You can reduce legal’s involvement while sending out watertight contracts.
Unify your workspace
In a scaleup, things change. And you need to be able to reflect those changes at speed and at scale. With a manual process, teams will need to hunt through shared drives, or filing cabinets stuffed with hard copies to find the information they need – an overwhelming, time-intensive task that risks mistakes being made in vital business terms. But a unified workspace, where all your signed option agreements live, will allow you to make changes fast.
How to scale your option agreement workflow
Design the perfect template
Your template will be used to serve all your option agreements, so it needs to be perfect. Use the in-browser editor in your contract collaboration platform to create an engaging agreement that parties want to sign. Foreground key terms, lose the legalese and make it readable and user-focused. The better the experience for the employee, the faster they will sign.
If your colleagues can self-serve option agreements from templates, then legal can dedicate more time to the higher-value work they were hired to do
Codify your contract playbook
To improve employee experience and get to “Yes” faster, you need to streamline the option agreement workflow. Look through previous versions of your option agreements. Are there any highly negotiated points that you’re willing to concede? Is anything queried more often than not or hard to understand? Can you simplify how you talk about options and shares to minimize back-and-forth? Codify all this information in a playbook so people and talent teams are empowered to negotiate without legal’s involvement.
Empower teams in the business
A Q&A flow is a great feature that empowers people and talent teams, allowing them to autopopulate contracts with key details, simply by answering natural-language questions. If your colleagues can self-serve option agreements from templates, then legal can dedicate more time to the higher-value work they were hired to do.
Give legal approval rights
Other teams may be empowered to self-serve, but you might want legal to have final sign-off before the agreement is sent to the employee. Create an approvals workflow in your contract collaboration platform, with defined roles for approvers and signatories. Sequential triggers will notify the right people of any updates to the contract and you’ll have total visibility before it’s sent for signing.
Keep it simple
Getting teams to adopt a new workflow can be a challenge, so make sure that the simple things are easy. Offer plenty of training to help teams build confidence and roll things out, step by step, to help the business stay in control of changes. Make space for legal to review the process regularly and to make improvements so that your scalable workflow stays scalable.
Experts break down every stage of the contract lifecycle in the ‘Modern contract handbook’. Download it, free.
Scale your option agreements with Juro
Is managing routine contracts at scale a challenge for your business, with friction pre-signature and a lack of visibility post-signature?
If so, try Juro for free and see if you could benefit from a contract collaboration platform that enables businesses to agree and manage contracts all in one unified workspace.