If you’re a famous chef, you wouldn’t spend the months leading up to the opening of your restaurant cooking microwave mac and cheese. Similarly, professional basketball players don’t just practice easy layups before a playoff game.

Putting off difficult or complex tasks until a major event is hardly ever a good idea. This is true throughout every aspect of life, including scaling your business. Unfortunately, startup founders, CEOs, and CFOs often fall into the trap of waiting to prepare for the due diligence process until the eve of a fundraising round or an acquisition (aka the worst possible time to be worrying about your cap table and documents!). Startups scale and hire quickly, and sometimes treat standardized due diligence with a less than diligent attitude: I’ll let the lawyers deal with this when our next round of funding approaches.

Other essential parts of business operations have standardized procedures that allow companies to stay on top of valuable data points and relationships. In the sales process, for instance, quarterly meetings, leadership oversight, and a focus on entering data into a CRM help sales departments stay on track. Equity management, unfortunately, doesn’t always get the same regimented attention, and therefore can fall by the wayside.

But ignoring equity management until you’re forced to get your data and docs in order by a potential investor can have substantial risks. Life at a startup is busy, but entrepreneurs can take small steps to make sure their company isn’t paralyzed by the due diligence process once investors and lawyers get involved. Emerging companies can save themselves time, stress, and money by increasing collaboration across different parts of the business, instilling the value of maintenance before it's too late, and leveraging technology to minimize manual tasks.

Here are four rules to live by as you make equity management a part of your day-to-day routine when scaling your business.

1. Standardize your hiring process across departments

Onboarding new employees forms a major part of the equity management process. When sending out an offer letter, you’re creating various data points that will become more valuable when you need clean documentation for fundraising. Each new employee requires a compensation plan (including cash and equity), an offer letter, and a confidentiality and intellectual property assignment agreement.

Once you’ve grown to the Series A or B stage, you likely have a much more complex web of stakeholders involved in the hiring process: hiring managers, finance managers, and equity compensation managers. Too often, these different departments and people operate separately from one another.

The best way to simplify the process and reduce the risk of errors is to outline a unified process across finance, HR, and hiring teams. Holding everyone accountable to the same process ensures you’re keeping all of those documents in place, and not mining through a former employees’ email for a signed agreement while trying to negotiate funding terms.

2. Set your own deadlines

Human beings, by nature, often don’t take care of mundane tasks until some forcing function, like a deadline, spurs them to act. Not every sales representative inputs their sales contract on a daily basis. Throw a monthly sales meeting on the calendar, though, and they’ll make sure their information is up to date.

When a business is growing quickly, colleagues might naturally put off some of the mundane equity management tasks that can cost you time and money when preparing for a fundraise. That’s why creating some sort of check-in process (monthly, quarterly, etc) can force you and your team to align all your documents and data.

Install regular reviews of your equity documents and data — from option grants for team members to investment documents and stock certificates. These check-ins can help ensure that, when you do reach a due diligence process, less cleanup is required.

Related: What You Need to Know About Stock Option Grants

3.Develop a document retention strategy early

As companies grow rapidly, documents that are relevant to the company’s operations can land in different systems and inboxes. Your sales team might be storing their agreements on one filing platform, while your CTO may have folders set up to house agreements with technology vendors on a completely different system. Even worse, many of the company’s equity financing documents can be stored by the law firm in their document management system (that’s not even accessible to the company).

Develop a plan for where all your important documents should live. It’s easy and will pay huge dividends down the road. In the beginning, your company won’t have a lot of documents, but that quickly changes as you sell and develop products, new team members join, and investors back your company. You’ll have great visibility into, and comfort in, your documents if you make a plan for managing them before things get out of hand.

Related: Equity Financing Documents: The Legal Agreements Behind Your Financing

4. Find the technology that helps you scale better

Startups in their infancy might handle equity management tasks manually at first and keep track of these transactions in a spreadsheet. They may even completely outsource these activities to their legal team, which often results in excessive fees and a lack of transparency and ownership in the processes. The good news is that, as you scale your business, these repetitive activities can be operationalized with the right software - making things not only easier, but more efficient.

Equity management software can help you formalize your day-to-day due diligence strategy and provide easy visibility into the organization of your data and documents. Every department (and external stakeholders like investors and attorneys) can work in an intelligent platform that helps keep track of who’s responsible for signing or executing documents, and reports things like your team composition and fundraising history in real time. Founders and CFOs can set the tone for alignment and maintenance, and a platform can help with the execution.

Fidelity is an all-in-one platform that gives you all the workflows you need for start-to-finish, fully-automated equity management. We leverage industry-standard documents to ensure the process is as risk-free and smooth as possible.


Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Third parties mentioned and Fidelity are not affiliated.


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