How would you acquire necessary and valuable expertise in the start-up phase of your company?
If the fundamental idea behind your company is good enough, it is not too difficult to captivate the right expertise as one could imagine.
For other companies in the beginning stages, it is quite often challenging and almost impossible to compete within its own industry. Even for the start-up companies with brand new and innovative ideas, it is demanding to begin the process and get to a level where the company can withstand uncertainties and hire the right people with the right proficiencies of different skill sets.
So how would you attract the right people with the wanted expertise when you do not have a rich uncle that can pay for such competence? If you also experience investors demanding a high share for their investment in the company you will face challenges before you have even started.
With stock options you captivate the right type of employees, which you otherwise would not have hired in a startup phase. Paying wages with stock options is getting more and more usual for newly founded companies.
A stock option is giving the potential employees a right to purchase a share of the company for a pre-determined price in a set time. This can turn out to be at a relatively low price compared to the company’s eventual future value. What determines the exchange rates potential VS the future is dependent on a series of parameters. Therefore, it is very important to present the potential of your company. This is crucial to attract stakeholders. If you do not feel comfortable presenting it to potential shareholders with the competence you seek, you should consider hiring a consultant that can contribute in a brief but important process.
If the company increases its value, the option holder may redeem the option and buy stocks to a lower exchange rate than the current market rate. Then the stocks can be sold with a profit or be kept in the hopes that the rate may be even higher. The value of an option when its redeemed is part of stock value that suppresses the redemption rate. When a company’s value increases, so does the stock options value as well.
Employees and CEO’s receives stock options as an incentive to contribute for the increasing value of the company. Something I would call a win-win situation for all parties involved.
At the same time, it is important to be informed about how a setup like this works in terms of tax laws. How the option tax is handled, differs from country to country. For example, in Norway the option tax has been criticized by people in the founder’s environment to act against its purpose, because it is treated as an ordinary earned income.
Naturally, critics think the Norwegian tax model is making it increasingly more difficult to acquire more talent and is an unequal foundation compared to other countries tax models, were the yield of stock options are regarded as investment income. This should absolutely not be an obstacle.
As I have mentioned earlier, it is important to be aware and informed about such possibilities before it is utilized. It is also important to be open to connect with the right expertise regardless of the country of origin.
If you are in the startup phase and are considering your need to use stock options as a tool, you are more than welcome to contact me and my team directly through LinkedIn, Facebook or Twitter for a more detailed conversation. Within the last 15 years we have provided advice and used stock options ourselves as a tool with excellent success.
You are welcome to share your opinions regarding this article.
by AFRIM KRASNIQI