Setting Up Equity Software Before Your First Priced Round

Without a priced round to anchor a share price, a custom software shop should generally get a 409A valuation before granting a single option, not after, so the strike price has a defensible basis. Skipping this step and setting a strike price based on a guess exposes both the company and the employee to IRS penalties if the price is later found too low. Carta offers 409A valuations for companies that haven't priced a round, and Pulley did as well before announcing in September 2026 that it will cease operations on December 8, 2026, so ask any provider which valuation methods it uses for your business.

A services-heavy development shop with lumpy project revenue is a harder valuation case than a subscription business with predictable recurring revenue, so ask whichever vendor you pick how they handle revenue volatility in the model before you commit.

Once you have a fair market value, the next step is a board-approved option pool, sized to what you'll actually grant over the next 12 to 18 months rather than an arbitrary round number. Both platforms generate the option pool resolution and grant paperwork for board sign-off, and both let you model dilution before the board meeting so nobody is surprised by the math afterward.

Carta's dilution modeling draws on a large dataset of comparable venture-backed pools, useful if you're benchmarking against similar-stage companies. Pulley's modeling is built to run scenarios quickly in a live meeting, which matters more if your board wants to see three pool sizes compared on the spot rather than review a report beforehand.

The grant itself needs a signed agreement, a vesting schedule, and, if the employee can early-exercise and wants to file an 83(b) election, a clear window to do so, since the election must be filed within 30 days of the transfer. A shop with a small, tight-knit engineering team can usually run this step manually inside either platform, since grant volume is low and every employee knows the founders directly.

Where the platforms differ is post-grant employee education. Pulley includes a plain-language portal that walks an engineer through what their grant is actually worth under different exit scenarios. Carta's employee-facing tools lean more toward the reporting an employee needs for tax filing than toward explaining the underlying math, which can leave a first-time option holder without much context.

Once options are granted, ASC 718 expense is recognized over the vesting period, and most finance teams book it every month, department by department, whether you have five grants or fifty. For a development shop billing hourly or on fixed-price contracts, tying stock comp expense to the right project cost center matters for accurate project margins, not just company-level P&L.

Median R&D spend for growth-stage software companies runs around 34% of revenue¹, and for a services-heavy shop that percentage often shows up as billable engineer time rather than a separate R&D budget line, so map your chart of accounts before the first close, not after.

A 409A valuation generally supports the safe-harbor presumption for up to 12 months, or less if a material event happens first, like a large new client contract that materially changes your forecast. Set a calendar reminder at month nine, not month eleven, so a refresh doesn't lapse mid-grant and force you to delay an offer to a candidate who's waiting on their equity number.

Say your shop lands a multi-year enterprise contract that doubles projected revenue: that's exactly the kind of material change that should trigger an early refresh rather than waiting out the full 12 months, and both platforms will flag it if you keep your forecast data current in the system.

A founder can run the first grant cycle personally, but that doesn't scale past three or four hires. Pick, before your headcount doubles, whether the founder keeps ownership of equity administration, a fractional controller takes it over, or you wait until a full-time finance hire joins. Waiting too long usually means a backlog of undocumented verbal promises that someone eventually has to untangle under time pressure.

A burn multiple that stays in a healthy band matters here too²: a shop that burns cash reconciling equity paperwork by hand instead of shipping client work is spending runway on the wrong problem. Whichever platform you choose, name an owner for the process in writing, not just an assumption that whoever set it up will keep running it.

The full sequence for a first option grant, in order:

1. Get a 409A valuation first, so the strike price has a defensible basis before any option is promised.
2. Set up a board-approved option pool sized to what you will actually grant, and model dilution before the board meets.
3. Issue the grant with a signed agreement and vesting schedule, and note the 83(b) window if early exercise is allowed.
4. Reconcile ASC 718 stock comp expense at every close, tied to the right project cost center.
5. Refresh the valuation at month nine so it never lapses in the middle of a candidate's offer.