Most founders know ESOPs are a powerful tool for hiring and retaining top talent. But structuring them right—without creating future headaches—is where things get tricky. Mismatched expectations. Tax surprises. Confusing strike prices. Messy cap tables.
A well-designed ESOP program can be your biggest competitive advantage—or an administrative nightmare.
That’s why we put together this deep dive: to help you avoid the common pitfalls and set up ESOPs the right way from the start.
Why This Is Not ESOP 101
Most ESOP guides cover the basics: what they are, why they matter, and how to issue them. But for a founder navigating real-world scenarios, theoretical playbooks don’t help.
The real questions—the ones being asked in late-night WhatsApp chats, boardroom discussions, and investor calls—are far more complex:
❓ How do you set the right strike price without hurting employee incentives or your P&L?
❓ What happens to ESOPs in a down round or an acquisition?
❓ Should you set up an ESOP trust, or is it unnecessary overhead?
These aren’t academic hypotheticals—they’re make-or-break decisions that can impact your ability to attract and retain top talent.
Who We Spoke To (And Why You Should Listen To Them)
🎙 Varun Rajda, Founding Partner at Constellation Blu – An expert in ESOP structuring, legal frameworks, and financial optimization, working with hundreds of startups to design equity programs that actually work.
🎙 Mitul Mehta, Head of Finance at Blume Ventures – With years of experience in startup finance, Mitul has seen how different ESOP strategies play out in the real world, helping founders navigate the fine print of stock options.
These aren’t just theoretical perspectives—they come from people who have structured and implemented ESOPs across multiple startups and funding rounds.
4 Actionable Takeaways for Founders
We know that you’ll bookmark the article to read it later. But we also know that life can come in the way. So we are sharing the four most important takeaways for you below. The link to the full article is at the end of the mail.
✅ Create your ESOP policy at incorporation—don’t wait for a fundraise.
Many founders make verbal commitments around stock options early on, assuming they can formalize them later. But without a legally binding ESOP policy from Day 1, you risk confusion, mismatched expectations, and potential disputes with early employees. A simple, low-cost ESOP policy at incorporation prevents major headaches down the road.
✅ Be strategic with your strike price—it impacts both employee wealth and company financials.
A lower strike price makes ESOPs more attractive for employees but increases the company’s P&L expenses. On the other hand, a high strike price makes ESOPs less appealing but reduces accounting costs. The best approach? Keep it low in the early stage, introduce a discount for mid-stage hires, and align it with the latest valuation for late-stage hires.
✅ ESOPs during M&A: Accelerated vesting is not guaranteed.
Many employees assume that in an acquisition, their unvested ESOPs will immediately vest. That’s not always the case. Some acquirers offer fresh stock options, while others honor existing vesting schedules. Founders should be clear on their ESOP treatment during M&A discussions to ensure employees understand what happens in different exit scenarios.
✅ Use vesting structures to align incentives—one size doesn’t fit all.
Time-based vesting (e.g., 4-year vesting with a 1-year cliff) ensures stability, but performance-based vesting can be a powerful tool for alignment. Consider tying vesting to key milestones, such as revenue targets or product launches, to ensure ESOPs reward real contributions rather than just tenure.
📖 Read the full piece here: ESOP 201: Beyond Basics to the Questions That Actually Matter
Thanks for reading.
Team Blume