It’s not at all uncommon for a period of weeks or even months to pass before employees get paperwork for their promised option grants. This is because the process can be complicated depending on the stage of the company. Luckily you got the promise in writing, so you have proof in case the company is up to something sketchy. But, 9 times out of 10 it’s just an administrative lag.
Here is a quick overview of the timing for issuing stock grants and the obstacles that may delay the process:
FIRST: The company must seek approval from its board of directors in order to issue your grant. This could take anywhere from one day to many months. The timing of the approval depends on the habits of that particular board, as well as the stage of the company.
SECOND: The company must prepare the grant paperwork. This doesn’t have to be a complicated process. In fact, many companies outsource this work to attorneys and third party grant managers who can turn around paperwork in a matter of days to a week. However, lots of companies try to take care of the process in-house and that’s when employees often see delays.
THIRD: You and the company must both sign the documents. If the company issues paper certificates, you might also get a stock certificate.
Obstacles to Speedy Paperwork:
In very early stage companies the co-founder(s) are often the only members on the board of directors, which makes issuing grants quick and easy. The further along the company, the more likely it is to have a larger board and a pre-determined schedule of meetings. So with a later stage, more established company with a big, structured board of directors you may need to wait longer to receive your grant. For example, let’s say your company holds board meetings quarterly and you were just promised shares the day after the quarter 1 board meeting. You may have to wait until the second quarter board meeting (whenever that may be scheduled) to get your grant paperwork.
However, lots of companies send around electronic board consents, to get approval for stock option grants and other routine business matters. This should speed the process up considerably, though you still may have to wait as the company collects every board member’s consent.
Third Party Valuations:
Another factor affecting the timing of your grant is whether the company is waiting on a valuation of its common stock. Generally, companies issue stock options at a price per share equal to the fair market value of the common stock on the day it’s issued. In order to determine the fair market value, most companies rely on a third party valuation, referred to as a 409A valuation. These reports take a few weeks to months to prepare and they expire every 12 months, or whenever the company hits a major milestone – such as a financing, acquisition offer or a major contract.
So depending on where the company is in its 409A cycle, you may have to wait for the valuation company to finish before the board can price and issue your grant.
Where the company is in its financing cycle might also effect how quickly you receive your grant. Most companies try to avoid promising grants right before a financing. This is because once the company is out shopping around a term sheet, it will not want to change its capitalization structure too much and it also arguably can no longer rely on the 409A. The company won’t get back to issuing options until after the financing is finished and a new 409A has been issued. This could be anywhere from 2 months to 8 months if the financing really drags on or has multiple closings.
There are several reasons why the company may take upwards of 4 months to issue you a stock grant. There’s usually no reason to panic, especially since you have the promise in writing. But there’s also no reason to stay in the dark. The company’s contract administrator or the person who offered you the grant should be able to let you know where they are in the process.
If you want to learn more about the type of paperwork you should receive, check out Paysa’s guide to EquityCompensation Mechanics.