Two Step's Private Company Equity Management Blog

I recently came across a great blog for start-ups and venture capital companies, called Altgate. It’s written by Furqan Nazeeri, who is an Entrepreneur-in-Residence with Softbank Capital of Newton, MA. He talks about “Startups, Venture Capital & Everything In Between.” His short articles are practical, useful and easy to read. I’m a big fan, not because he recommends our software, but because if you’re someone like me, a CEO or CFO or an entrepreneurial, high-tech company with very little time, you will find it useful.

Furqan helps Softbank evaluate and source investment opportunities, works with Softbank portfolio companies, has been a key person in a number of startups, and is continually searching for the next opportunity. In the process of researching equity compensation for startups, he came across Two Step’s Equity Focus stock option management software.

He was so intrigued by the product claims of being an easier way to manage options and create capitalization tables that he called Two Step and asked for a demonstration. His opinion: “I was very impressed. … In the past I have used shrink wrapped, desktop software to manage options, as well as just Excel files and shared directories. I think Equity Focus is superior to both.”

Here’s his unsolicited review which you can read on his blog.

The solution is delivered as a service like Salesforce.com and provides an easy to use yet very sophisticated tool to create and manage your company's capitalization table. It allows you to create a comprehensive archive of all the events and related documents that influence your cap table and it provides an audit trail.  The reporting looks very powerful and the pre-built work flow and forms are comprehensive and flexible enough for most startups.

And to boot, it is priced very reasonable - cheap enough, in fact, that every startup should use this tool or one like it from inception.

My unsolicited review of Altgate: Don’t just read his blog. Trust him one step further. Read the blogs he reads. I do.

Last month, more than 300 CFOs, controllers and other accounting professionals registered for our third in a series of webinars that Two Step Software presented this year on FAS 123R best practices. This one was called “FAS 123R Best Practices for Rock Solid Year-End Reporting: How to Prepare for Your Upcoming Equity Compensation Audit Before It's Too Late.” (You can download a recorded version of the presentation or the related white papers and checklists.)

The “hot topic” for this webinar was the new accounting standards104-111, effective for fiscal years ending Dec. 31, 2007, that one of our panelists, Daniel DeVasto, the CEO of Wolf & Company, P.C., referred to as some of the most far reaching changes in auditing standards in 25 years. I had originally heard Dan refer to these changes as the “cascading effects of SOX” since they require non-public companies to assess their financial statement risks and controls in similar fashion to the requirements under SOX Section 404.

This topic was particularly interesting to our audience since these new standards uniquely apply to the equity compensation accounts because they are considered “non-routine” significant accounts and non-routine accounts are areas that have “significant risks” associated with them. Since these types of accounts may have a greater risk of material misstatements, they require greater controls and may be subject to additional scrutiny by auditors. 

Dan’s presentation described non-routine transactions as those that involve:

• Management intervention to specify accounting policies;
• Manual intervention for data collection and processing;
• Complex accounting principles or calculations; or
• Estimates, especially those requiring assumptions about future events.

Clearly, stock option tracking, valuation under FAS 123R, and equity compensation amortization fit well within this category.

An auditor’s assessment of whether a company has appropriate levels of internal control over their financial statements will be based in most cases on the standard COSO framework:

1. Control environment
2. Risk assessment by entity
3. Information and communication systems
4. Control activities
5. Monitoring

Whether it’s because of SOX 404 or the new SAS 104-111 requirements, all companies with stock option plans or similar equity based awards will need to take a careful look at their equity compensation practices and evaluate the areas of risk and the types of controls that are appropriate. Starting this year, privately-held companies with audited financial statements can no longer escape the internal controls requirements that previously only affected publicly held companies subject to SOX.

You can link to the recording, slides and materials here.

In connection with the Two Step webinar: FAS 123R Best Practices for Rock-Solid Year End Reporting – How to prepare for your upcoming equity compensation audit before it’s too late, Two Step has partnered with the National Center for Employee Ownership (NCEO) to offer special discounts off the purchase of its best-selling equity compensation books, including The Stock Administration Book (written by Amy Yamashiro, one of our webinar panelists).

The Stock Administration Book is a detailed guide that addresses the real-world scenarios faced by stock administrators. It's a must-read at Two Step Software and we recommend it to our customers.

"The Stock Administration Book is an essential desk reference for any new stock plan professional. The templates provided make it simple to drop in company specific information and quickly build comprehensive processes and procedures, removing the headache from this process!"

Emily Cervino, Director,
Program Development and Curriculum,
Certified Equity Professional Institute,
Santa Clara University

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To take advantage of this special offer, go to www.nceo.org/twostep and use these promotional codes (good only through Dec. 24, 2007):

The Stock Administration Book at $35 each
Code: FRADMIN

The Stock Options Book at $10 each
Code: FRSTOCK

Selected Issues in Equity Compensation at $10 each
Code: FRSELECTED

$20 off NCEO membership
Code: MEMBER20