For entrepreneurs, effectively using ISOs involves striking a balance between offering attractive compensation packages and managing the company's equity structure. Entrepreneurs should:
1. Set Clear Policies: Establish clear policies regarding who is eligible for ISOs, the vesting schedule, and the exercise price. 2. Educate Employees: Ensure employees understand the potential benefits and risks associated with ISOs, including tax implications. 3. Consult Professionals: Work with legal and tax advisors to ensure compliance with regulatory requirements and to structure the ISOs in a way that maximizes their attractiveness and effectiveness. 4. Monitor Equity Dilution: Be mindful of how granting ISOs affects the company's equity and the ownership percentages of existing shareholders.