Guide to Your Equity (Clef)

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There are currently 4,662,658 shares of Clef common stock outstanding.

Our 409A Valuation Report, which discusses the price per share of employee shares, is available (to employees only) here. Any employee with questions about the report, our share price, or valuation should ask B.

This guide is meant to help you understand the piece of Clef that you’re going to own! Its goal is to be more straightforward than the full Stock Incentive Plan and Award Agreement, which both go into the full legal details. You should consult an employment attorney if you have any questions about navigating your stock options and before you make important decisions.

Owning stock in Clef gives you a stake in our success. As Clef grows and increases in value, you will own a piece of that growth and increased value. Clef is pretty small today, but if things go well, your stock could be worth many times more. However, you are gambling with this portion of your compensation – if Clef decreases in value, then your options won’t be worth anything.

Stock Options

At Clef, we give equity grants in the form of Incentive Stock Options (ISOs). It’s called an option because you have the option to buy Clef stock later at the same price it was worth when the option was granted. So if a share of Clef stock is worth $1 today and we grow so it’s worth $20 in a few years, you’ll still be able to buy it for $1 (and then sell it immediately for a profit of $19).

The reason we give stock options instead of straight stock is that it keeps you from being taxed on the stock until you actually use it.

If we gave you $10,000 worth of Clef stock today, you would have to pay thousands of dollars in taxes this year. If we give you options for $10,000 worth of stock, you don’t have to pay any taxes until you exercise them (more on exercising later).

Vesting

Instead of giving you all of your options on day one, you get them over time. This process is called vesting and different companies offer vesting schedules of different lengths. If you had a basic 2 year vesting period, you would own a quarter of your stock after 6 months, half of your stock after a year, and all of it after 2 years.

The industry standard right now is 4 years, but at Clef, employees’ stock vests over 6 years. We offer much higher equity grants than the industry standard (about 2x in most cases), but it takes longer to earn them. This works out so that employees always come out ahead, even if they leave before their stock has fully vested, but helps us communicate that we’re looking for employees who want to build longer careers at Clef.

Vesting happens on a monthly basis (so you vest 1/72 of your options each month), but many vesting schedules include a cliff.

A cliff is a period at the beginning of the vesting period where your equity does not vest monthly, but instead vests at the end. At most companies, including Clef, this cliff happens at one year. This means that if you leave your job before you’ve worked for a whole year, none of your options will be vested. At the end of that year, you’ll vest the entire year’s worth of equity all at once. This helps keep the ownership of Clef stock to folks who have worked at the company for a meaningful amount of time.

Dilution

When Clef raises money from outside investors, it needs to create new stock to sell those investors. You will own the same number of shares as you did before, but there will be more total shares of Clef available, so you will own a smaller percent of the company – this is called dilution.