Governance · Lesson 1 · 14 min
Granting options to your first hire
You sized the pool — now grant from it, properly. Learn what makes an option different from a share: the strike price, the value that only exists above it, and how vesting gates all of it. You leave with a real grant on your cap table.
An option is not a share
When you hire, you don’t usually give shares — you grant options: the right to buy a set number of shares later, at a fixed price called the strike. The strike is normally pinned to the fair value of a share on the day you grant. So at grant time the option is “worth” nothing on paper — its value is all in the gap that opens up as the company grows.
Value lives above the strike — and only when vested
If a share is worth ₹40 and the strike is ₹10, each vested option is worth ₹30 — the spread. If fair value falls below the strike, the option is underwater: worth nothing until the price recovers. And the employee can only exercise what has vested — the same 4-year / 1-year-cliff schedule you met in the cofounder lesson. Grant size, strike, fair value, and vesting together decide what your hire actually holds.
Govern the pool
Every grant comes out of the ESOP pool you sized at the raise. Granting deliberately — right-sized for the role, with a clean strike and standard vesting, recorded on the cap table — is what keeps the pool (and the company) trustworthy and auditable when an investor or an acquirer later looks. Sloppy, undocumented grants are one of the most common things that surface, painfully, in diligence.
Now grant one
Set the grant size, the strike, and today’s fair value, then see what your hire’s options are worth now and at a future exit. When it looks right, keep it — the grant is recorded on your real cap table.
Model an option grant
Standard terms: 4-year vest, 1-year cliff. The strike is usually set to the fair value on the grant date.
Vested so far: 30,000 of 80,000 options (37.5%)
An option isn’t a share — it’s the right to buy one at the strike. Your hire only captures value above the ₹10 strike, and only on what has vested. Set the strike too high relative to fair value and the grant feels worthless; that’s why strike is pinned to fair value on the day you grant.