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Managing Token Incentive Plan
In this chapter we look at differences for managing TIPs compared to classical ESOPs and walk through an example of "A Startup" on the way from establishing to issuing tokens and to raising round.

Token pool size calculations

Most startup founders understand the need to share company with their employees, advisors and other contributors to incentivise them. To set up an ESOP, the founders can create a share pool on top of the current shares or allocate a part of the existing shares. The founders should clearly understand what and how much they would like to distribute.
Toke Incentive Plan works similar to typical equity incentive programs, but in v.1, Salto X offers a legal onramp to create the TIP "on top" of the existing share pool. In addition, we help the founders figure out how big the slice of the pie should be distributed and align the TIP pool accordingly.
Example
  • " A Startup" has a total of 2500 shares.
  • The "A Startup" founders decide that their contributors should receive 10% of the "A Startup" future value (for this example, we discard future funding rounds, those would dilute the existing share and token holders alike).
  • The "A Startup" has to consider how the value will be distributed between shares (100% of equity) and tokens (10% of the value).
(2500 [Number of shares] / (100% [equity] - 10% [TIP value])) - 2500 = 277 [amount of tokens for TIP]
Control calculation - but 277 is not 10% of 2500. Correct, it is not! 277 is 10% of 2500+277= 2777, which results in participants getting 10% of the company's future value.
Calculation of TIP size
Explanation
Legal CAP
The number of Legal Shares of “A Startup”
2,500
Legal cap, which should remain the same with the new TIP.
TOTAL Financial CAP
% of shares + tokens should be 100%
100%
How big is the “value” we should have in total so that the existing Legal CAP would remain 2,500 and participants would get their 10% in tokens.
Token CAP %
”A Startup” wants to give 10% to participants
10%
The amount of share-value from TOTAL Financial CAP that “A Startup” wants to give to employees, advisors, other contributors - participants.
Shareholders Financial CAP
% of value that should be kept for existing shareholders
90%
% of share value that would be left for “A Startup” shareholders and founders.
TOTAL Financial CAP (tokens + shares)
2,777.78
This is the total amount of total shares and tokens that the “A Startup” should have so that Legal CAP would remain at 2,500.
TOTAL Financial CAP (tokens + shares) - rounded down!
2,777.00
Total amount of total shares and tokens but rounded down. Rounding down needed to the closest 1 to keep the numbers even.
Tokens CAP (number of tokens)
277
This is the number of tokens “A Startup” would give to the participants and it's 10% of the TOTAL Financial CAP.

Token pool dilution

The number of tokens is decided based on the current value and number of shares. If the company raises future investments, then the number of tokens remains the same, which means that token holders are diluted precisely on the same terms as other shareholders.
The company can decide to launch new token programs whenever the company and the shareholders decide to do so.

Raising next round examples

Token Incentive Plan functions similarly to ownership of the company - as the Company sets and accepts a certain number of tokens when accepting the Token Incentive Plan - it is affected by new shares issued when converting Convertible Loans or raising Equity Investment rounds.
An example:
  1. 1.
    “A Startup” has a share pool of 2,500 shares. The nominal value of each share is 1 EUR.
“A Startup”
Share capital
€2,500.00
Shares (Legal CAP)
2,500
Nominal value per share
€1.00
2. “A Startup” has 2 owners - they are both founders and they have decided to split their company 60% and 40%
2. Share split/CAP
Number of shares
Founder 1
60%
1,500
Founder 2
40%
1,000
Total
2,500
3. They have started hiring employees and decided to create an Incentive Token Plan that would represent 10% of “A Startup” value. Based on the example under Token pool size calculations from above, they will launch a program with 277 tokens.
  1. 1.
    To keep the future proceedings at 10%, the “A Startup ” has to consider the total value pool - both Legal shares and tokens of 10%.
    1. 1.
      (2500/(100%-10%))- 2500 = 277. [Rounded down result]
    2. 2.
      (Number of shares divided 100% minus token pool value %) minus number of shares = the number of tokens
4. “A Startup” raises an investment round as an equity round. So they will issue new shares for the investors investing money in “A Startup”. In a simple overview, the startup’s pre-money valuation is 2 million EUR, and they raise 500 000 EUR as an investment. Based on the pre-money valuation, they will issue 500 new shares for the new shareholder/ investor.
The fact that 500 new shares were issued and given to new shareholders/investors does not affect the ownership of Founder 1 and Founder 2 - they still own the same amount of shares as they had previously.
Investment details for “A Startup”
Pre-money valuation
€2,000,000.00
Investment
€500,000.00
Post money valuation
€2,500,000.00
Post money share split for the investor from LEGAL CAP
20.00%
Shares for the investor based on postmoney valuation from LEGAL CAP
500.00
Total LEGAL CAP - number of shares
3000
5. As a result of the investment round, the ownership structure changes. The founders and the participants of TIP are diluted. The number of shares and tokens is still the same, but the total number of shares and tokens has increased. As a result, the % of the ownership for the founders is no longer at 60% and 40% but less.
Postmoney Financial CAP
shares/tokens
%
Total
3,277
Founder 1
1,500
45.77%
Founder 2
1,000
30.52%
Participants
277
8.45%
Investors
500
15.26%
Total
3,277
100.00%

Hybrid use of ESOP & Token Incentive Plans

Salto X can coexist with other Incentive Programs, including Employee Stock Options Plans. In some countries, where tax legislation provides clear tax benefits for local ESOP programs, it is beneficial to establish them for local employees and provide TIP for those not qualified under ESOP.

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Token pool size calculations
Token pool dilution
Raising next round examples