How much does it cost to draft a stock option plan for a startup?

Question

I have an offer from a startup that does not yet have a formal stock option plan. The CEO's excuse is that "drafting a formal plan is expensive" and he wants to wait until the company has income before getting the plan drafted. He insists that the legal fees can be upwards of $20k or more.

So, how much does it really cost to adapt a stock-option plan?

I have heard that it's really an off-the-shelf document and doesn't cost much.

Answer 1

For our company, we've spent around $50,000 to get a fully-fledged option plan layed out. While it should be an off-the-shelf document, depending on how badly your cap table is prior to these options, there could be a lot of cleaning up before any real work is done and thus the huge cost.

While drafting the document is definitely expensive, your CEO should be able to put together an informal promise for options. Once you have the capital, you can get the formal documents drawn up and get your promise fulfilled. You could even ask for more options seeing that you're taking the CEO at his word, and letting the startup prepare its current capital. Personally, however, I would be wary about a CEO unwilling to make his employees feel secure and protected, it's your judgment on this one.