Designing an ESOP Pool Before a Series A Round
A VC-backed edtech startup wanted to lock in three senior hires with equity before raising its Series A. We built an ESOP pool that survived investor due diligence without a single comment.
What the engagement demanded.
A Bengaluru-based edtech startup had raised a seed round and was heading into Series A conversations. The founding team wanted to use ESOPs to retain three senior hires who had joined below market salary on the promise of equity, but had no idea how to structure a pool, what the tax implications would be for employees, or how to set it up in a way that would survive the scrutiny of an incoming institutional investor.
How we executed the engagement.
Pool Structuring
Designed an ESOP pool representing 8% of the fully diluted cap table, structured under Section 62(1)(b) of the Companies Act.
Vesting Schedule
A four-year vesting schedule with a one-year cliff, in line with what Series A investors typically expect.
Scheme Documentation
Drafted the ESOP scheme document, individual grant letters, and the board and shareholder resolutions required for approval.
Tax Walkthrough
Explained the tax treatment at each stage: no tax at grant, no tax at vesting, and capital gains on eventual sale — with the holding period running from the date of exercise.
The capabilities we brought to bear.
ESOP Pool Design
Cap-table-aware pool sizing structured under Section 62(1)(b) of the Companies Act 2013.
Scheme & Grant Documentation
Scheme document, grant letters, and board/shareholder resolutions drafted to institutional standards.
Employee Tax Advisory
Stage-wise tax treatment from grant through vesting, exercise, and eventual sale clearly mapped for each hire.
Investor-Ready Structuring
A pool and paper trail built to withstand the scrutiny of an incoming institutional investor's legal counsel.
The results we delivered.
Investor legal counsel reviewed the ESOP scheme during due diligence and had no comments. The round closed with a clean cap table.
An ESOP scheme that falls apart in due diligence costs more than the equity it was meant to protect. Getting it right before the raise is always cheaper than fixing it during one.
