Been away for some time but met some very good people and so need to post!
If companies in clusters have option plans, does this help the cluster to grow? Of course entrepreneurs can build companies with no option schemes and if they do so, they are best to go for a Passive Equity Company and keep the number of shareholders down to two or even one. Even a couple of extra very small shareholders in the very early days can lead to problems in ten years time when the company is very valuable and the reason for them having shares has long passed. So if you do not want other people to be part of your equity structure, decide from day one and offer a bonus and/or excellent working conditions. However do remember that however well you do, it is so much easier to build a technology company in a cluster.
But from the point of view of the cluster, it is much better if most companies are Active Equity Companies and offer options. When the liquidation event occurs, as it must with an Active Equity Company and the business is sold or floated, then there will be people in the cluster who have cash and experience of a start-up to form new companies. The original Segal Quince Cambridge Cluster report from 1980’s has an excellent diagram showing how the cluster grows by companies being “born”.
One of the great joys of Active Equity Companies is that everyone is a winner but there can be times as in the bubble of the late 90’s when team shareholders can spend too much time checking their vesting rights and valuations. If the values of the options fall below the “watershed” then resources have to be allocated to re-price the scheme with attendant professional costs.
How are you going to generate value in your business and which business plan resource will you use? Can you generate the value on your own or do you need a tightly knit team of people and investors?
But do not fall into the trap I have seen in the Cambridge Cluster too often – use the difficulty of raising funds to put off the venture with all the risks and stress involved. Go out and find customers and get building value and find another way of making your dreams come true.
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