🦾 Mark's Departure, Nami Surgical, Last Call for TechX Accelerator, Aberdeen is taking less %%.
Plus, the final instalment of our share incentive deep dive.
Here's your Campfire for the 21st of October, 2024.
💼 Want to create template legal agreements in minutes for free? Check out what Shepherd and Wedderburn making available for Campfire readers below in the ‘Asks and Offers section’. Also follow the Start to Scale LinkedIn page for useful videos and posts designed to help founders.
🌊 Updates
Mark Logan, former Skyscanner executive, stepped down as the Scottish Government’s “Chief Entrepreneurial Officer” after four and a half years, citing political attacks as a draining factor. The Techscaler programme was introduced following his Scottish Technology Ecosystem Review also known as the “Logan Report”. FS DGT IN TS
According to the British Business Bank, equity deal activity for smaller businesses in Scotland grew by 6% in early 2024, making Scotland one of only two UK regions to see growth after a challenging 2023. The average deal value reached £1 million, placing Scotland behind only London and the East of England. SFN IN DGT SBN
Glasgow-based startup Nami Surgical is developing miniaturised ultrasonic devices for use in robotic surgery, aiming to make procedures more precise and less invasive. Ultrasonic scalpels, which have previously been too large and rigid for robotic use, will now be adaptable thanks to Nami's technology. FS
More of this please: The University of Aberdeen is reducing its equity stake in spinout companies to encourage more innovation and speed up the commercialisation of intellectual property. This new policy, which lowers the university's equity share in new businesses to as little as 5%, down from the previous minimum of 21%, makes Aberdeen one of the first universities in the UK to implement recommendations from a recent HM Treasury review on university spinouts. DGT
📣 Asks & Offers
🚨Start to Scale by Shepherd and Wedderburn is offering eligible subscribers of Campfire exclusive access to their ‘Start to Scale Hub’ which helps companies create template legal agreements in minutes for free. To learn more and request access click here.
🥃 Are you a problem-solver driven by curiosity and a passion for your work? Do you thrive on deep, meaningful conversations and value fostering long-lasting relationships? Do you love whisky? If so, we invite you to become a founding member of Dram & Discourse. Learn more here
🦅 Barclays Eagle Labs launched their new Eagle Labs Academy, funded by the UK Government. The Academy provides access to free learning content and entrepreneurship training from different sources. Aiming for those starting their journey to those wanting to scale. Aside from the content, Eagle Labs has partnerships and access opportunities with the Department for Science, Innovation, and Technology, and their Demo Directory. Find out more here.
👭 Interested in connecting with possible co-founders? Fill in your listing on Cofounder Curious today! Connect with others for possible cofounder matching here.
👷Are you hiring? Send us a blurb and we’ll include it in the next newsletter!
✍️ Want to write something for Campfire? Have an opinion you'd like to share? get in touch!
Tactics, strategies, and questions about share incentives
By Robert Gelb, in partnership with Shepherd and Wedderburn
A few weeks back we dived deep into everything about EMI schemes (you can find that here, or part one about the basics of share incentives here). Today, I'm back with Stephen Trombala and Rodger Cairns from Shepherd and Wedderburn, and we're digging into different tactics, strategies, and questions you should ask yourself as a founder when thinking about share incentives more broadly.
HMRC Valuations: When in doubt, disclose
Make sure you are declaring everything to HMRC, including discussions with possible investors. Discussing a round at a much higher valuation doesn't necessarily mean that will successfully conclude. As Rodger puts it, "You can get pretty decent discounts to that sort of commercial market value. For example, you might argue for a 75% discount because of non-marketability, risk and other potential stumbling blocks. All that is fine as long as you are genuinely disclosing the full facts and circumstances. By disclosing the discussions you were having, you have a paper trail, become more credible, and lessen the risk of potential tax issues for the founders later on."
"Oh, and also, take screenshots when you're notifying HMRC about EMI options," Rodger adds. Weirdly, the only confirmation you have that an EMI submission has taken place is a single page with a 20-digit number on it, so having that organised will be helpful during a diligence exercise.
Granting options
HMRC valuations only last for a period of time, so the idea of continuously submitting new valuations isn't practical (nor affordable!). Especially for early stage companies, Rodger suggests staggering the period of granting options in blocks so you can do a set in one go (for example once every 6 months or a year), "You'd ideally also have a minimum period of probation before they'd become eligible to be granted options. Because the probationary period is one of the most likely periods of staff-member exit, it also makes the likelihood of having to lapse options less likely in the earlier stages."
Option pool considerations
Balancing that somewhat is thinking about when you'd want to grant options from the perspective of your option pool. Often companies will develop option pools to serve as a bed of share options with which to incentivise new and existing staff. As Stephen points out, "The biggest bang for the buck in terms of the option pool is to get the options granted at the lowest possible value. And so the sooner that you can get options out of the pool and granted to members of the team, generally, the better." Having said that, it doesn't mean you'll want to allocate the full pool immediately, "Founders will most likely identify gaps in the management team, and will want to have a portion of the equity retained for that incoming Head of Sales, CTO, etc."
Under usual circumstances for a business that is taking on multiple investment rounds, a company is likely to refresh its option pool before each funding round as long as they are bringing in new investors. Stephen notes that, "Generally investors will look to scale up the option pool again, such that there's adequate firepower in the option pool at each financing round. For new money coming in, they're delighted to see the option pool getting reloaded because they're not bearing the cost of that."
This is something that founders sometimes get tripped up with. When expanding the option pool before the round, it dilutes existing shareholders rather than new investors coming into the cap table. This can lead to a tension between existing investors/shareholders and new money.
How long to keep an option open?
There's also the question of how long to keep an option open for staff in the first place. These arrangements can range from exit only and requiring the team member to be employed at the date of exit, to a vesting of share options that are still exit-only, to vested options that are exercisable in certain situations. And when do these options even expire?
"It's a balancing act," Stephen says, "Quite often, you have a very highly skilled, very mobile workforce, and they're probably viewing the contribution they make to a given business in terms of about three years. If that's the case, and they then think that they're not going to get to retain the share incentives that they've earned, they may be less likely to join the business and less likely to make that contribution. So, you are starting to see a bit more willingness to agree to vesting schedules where if an employee has vested options, they are able to retain those."
Rodger adds, "There's also a distinction that needs to be made about how leaver provisions work, because even after agreeing to vest options over those three years, to what extent are you then able to exercise those options to acquire the shares? If you want to exercise options, you often have to outlay cash for the exercise price, and for the tax just to exercise those options. So, you might then consider the ability to keep their vested options, but reserve the exercising for exit."
But how long do you allow for someone who used to work for you to retain those options? Rodger says there are several questions to think about, "Are we saying that if somebody gives three years' worth of their time, they should be able to hold onto that vested option until the 10th anniversary of its grant, which is the typical lifetime of an option in the UK? Or are we saying that if they give three years and the exit doesn't happen until nine and a half years, is that ultimate transaction too remote from their contribution to the business to mean that they should still benefit from it? Because of these questions, we're seeing founders saying, well, for good leavers who've been here for three years, they might get to hold the option for another two years (for example), and if an exit happens in that two year period, they can participate like everybody else. But if it goes beyond two years, then we, the business, think that's too remote from the contribution of the individual. Therefore the option would lapse and they don't get to participate."
Be mindful of unused option pool allocations in the lead-up to a transaction
Rodger identifies this as something he's seen before, "A founder might be left with a massive unutilised options pool as they head into a transaction. And then they might think to grant options at the back end. It's something that can drive some of the riskier behaviours without necessarily realising it. They might say to themselves, 'Well, we think a deal is about to happen. We've had initial conversations with investors, we've got 3% of the pool that's unused, let's just bang it out now.' And that's how people get themselves into difficulties, by trying to squeeze something in or maybe not divulge everything they should do to HMRC in the lead-up to a transaction.
Overseas team members: How to give them similar incentives
You might think it's pretty simple. Shares are shares, options are options, and someone might not get as big a tax break, but surely giving out share options to anyone in the world must fundamentally work the same way as it does here, right? That's a hard no.
Rodger notes, "If you're using shares, actual shares, doing so will come with an element of risk in terms of local securities laws, in terms of exchange control and other areas. Transgressing those rules can carry fairly significant penalties in different jurisdictions." Gulp.
That means if you want to offer shares to someone based in another country, you'd most likely want to get local advice before doing so. And if you have a large presence in that country, sure that might make sense. But for a single team member or a small group?
"In this case, you're looking for a more cost-effective solution that delivers the same overarching incentive benefits," Rodger says, "but in a way that mitigates risk and mitigates cost."
One option is to look at phantom options. These are agreements to pay an amount equal to the value of a share, often in an exit-only condition. It's basically an agreed-upon cash payment. There are no shares issued, and no securities law complexities one has to deal with. They aren't tax advantaged, however as Rodger notes, "In many countries there is no tax advantaged regime for options, meaning that the tax impact of granting an exit only share option or giving them cash is probably going to produce broadly the same outcome."
These seem magical. Almost too good to be true... But there are some challenges, the biggest being phantom options' lack of use by early stage businesses which leads to unfamiliarity and an atypical perception by some VCs (they are more often used by larger companies). Phantom options are agreements for future cash payments, so need to be treated as such on a balance sheet. There are some situations where a phantom option can complicate matters or be a more beneficial option than a regular share option, for example, if a company is being acquired for shares instead of cash.
As Stephen says, phantom options can be good for small numbers of team members and limited use, but eventually, a company will have to consider the benefits and drawbacks to both the business and the employees, "Whilst phantom plans are pretty good for places where you've got one or two folks, if there are going to be a few more folks on the team in, for example, the United States, there's a reasonably well understood and well-trodden path to granting options to US personnel. These often come in two flavours, similar to the UK: non-qualified, and incentive stock options (ISOs). If you're planning to hire and grow in the US, there will be an expectation that you are adopting typical incentive structures."
Exercising in the US vs UK
Another thing that Stephen notes if you are planning to have teams in the US and UK, is understanding the differences between EMI and ISOs when it comes to the likely time of exercise, "ISOs have got certain tax advantages just like EMI over here, but importantly, it's got one big difference: the option holder needs to have exercised the option and held the securities until twelve months from the date of exercise (or twenty four months from the original date of grant, if later)." What that means is that often when people are granted ISOs, the moment they are exercisable, the person will exercise them and hold shares. "Founders therefore need to be mindful about a mismatch between having ISOs with the ability to exercise immediately versus an exit-only option for UK colleagues," Stephen says.
When going the ISO route, founders also need to be mindful of 409A valuation. "There's certainly a discussion around whether you can treat an HMRC agreed valuation as the basis for 409A," Rodger says, "It can be a bit more complex (read: expensive) to get a valuation for."
All this is to say, it's things you should think about and research when looking into expanding internationally, especially in the US. When I put to Rodger and Stephen the premise of considering ISOs vs non-incentivised options for a startup with 5-10 people, looking to expand into the US who aren't interested in doing a Delaware flip, but are planning to hire some hefty folks in the states, their suggestion depends on one’s objectives both now and in the near future. "At the end of the day," Stephen says, "If key personnel are based in the States, and they're expecting to get a reasonable amount of equity out, I think you'd probably be seriously considering ISOs anyway." ISOs are a whole topic in themselves. If folks would like more discussion around topics like these, let me know!
These are all important questions that, hopefully you'll be excited to face as they all mean your business is expanding and growing. As you can tell the decision tree has almost limitless branches which of course can be confusing, but hopefully also empowering knowing there are many ways to go about thinking about share incentives for your company as you grow.
This is part three of a three-part series about Share Incentives in collaboration with Shepherd and Wedderburn, who sponsor Campfire. Part one covered the basics of share incentives and part two covered EMI schemes. To find out more about how Shepherd and Wedderburn can help you design a share incentive scheme that works for both you and your team members, reach out to them here.
📅 Events
💼 21/10, 16:30 🗺️ Online: The Psychology of Unlocking Ambition and Managing Risk: Join our webinar and hear from investor Suneil Mishra as he explains risk management and how best to use it to boost your business. MORE INFO
🎉 22/10, 17:00 🗺️ Stirling: CodeBase Black History Month Celebration: This event is set to be an inspiring evening, showcasing the achievements and insights of successful Black leaders from various industries. MORE INFO
🤝 22/10, 18:00 🗺️ Glasgow: Third Sector Lab and CodeBase: Digital Trustees Matchmaking Event: The informal matchmaking event to get more digital, data and design professionals on third sector boards. MORE INFO
🎯 22/10, 18:00 🗺️ Glasgow: Third Sector Lab and CodeBase: Digital Trustees Matchmaking Event: A Digital Trustee is a volunteer with experience in digital, data or design who sits on the Board of a third sector organisation. They provide guidance to the organisation around how they can best make use of digital as well as insight into best digital practices. MORE INFO
🩺 23/10, 11:00 🗺️ Dundee: Barclays Eagle labs at MSIP October Drop-in Clinic 2024: Drop in and let’s have a chat about your business goals and ambitions here at Michelin Scotland Innovation Parc. MORE INFO
💼 23/10, 13:30 🗺️ Stirling: Central Scotland Office Hours: This event is designed for Central Scotland founders and Techscaler members seeking personalized 1:1 expert advice on legal, accounting, product development, and sales, or help with challenges in their startup journey. It’s also a chance to learn more about the Techscaler program and the various education courses we offer. MORE INFO
🍺 23/10, 18:00 🗺️ Glasgow: Glasgow- Small99's People, Planet, Pint™: Sustainability Meetup: Pop down to your local People Planet Pint meetup to find more about what's going on locally with sustainability and how you can get involved. MORE INFO
💻 23/10, 18:30 🗺️ Edinburgh: Organisational and People Development Meetup: This is really for anyone who is interested in people, team, leadership and organizational development and who wants to be share their interest with others. MORE INFO
🚀 24/10, 08:30 🗺️ Edinburgh: Digital Transformation Summit 2024: DT2024 will contextualise the key technology trends and industry disruption amidst a backdrop of significant socio-economic upheaval. The event will also consider the role of technology leaders in driving positive transformation, exploring how we can help support operations, drive innovation, overcome challenges, and deliver tangible business benefits. MORE INFO
💼 24/10, 17:30 🗺️ Edinburgh: Business & Finance for PMs: Join us on 24th October for an enlightening session on business skills for product people and financial modelling. We’re thrilled to welcome two incredible speakers, Dr. Viktoria Korzhova (VP Product & COO, Product People) and Rebecca Mortimer (Senior Product Manager, BBC Maestro), who will be sharing their unique insights and experiences on this topic. MORE INFO
🧠 24/10, 17:30 🗺️ Edinburgh: Innovation: Past & Present: Delve into the past, present and future of innovation in Edinburgh by joining an inspiring tour organised by Invisible Cities, visiting places like Scottish Design Exchange. MORE INFO
🤝 24/10, 18:00 🗺️ Dumfries: Tech MeetUp - South of Scotland: This event aims to bring together everyone who is interested in tech, those who want to learn more, and want to meet like-minded people. MORE INFO
🔥 24/10, 18:00 🗺️ Dundee: Founder's Life Fireside Chat (hybrid): Join us in the Abertay cyberQuarter & online via Zoom for a discussion about the personal and professional challenges of being a startup founder. Lara Findlay, our Head of Regional Engagement, and Ian Martin, CodeBase's Head of Startup Experience, will be discussing topics such as stress, work-life balance and co-founders. MORE INFO
🍺 24/10, 18:30 🗺️ Edinburgh: Edinburgh - Small99's People, Planet, Pint™: Sustainability Meetup: Pop down to your local People Planet Pint meetup to find more about what's going on locally with sustainability and how you can get involved. MORE INFO
🤝 25/10, 08:30 🗺️ Edinburgh: Coworking Open Day by The Melting Pot: Are you interested in becoming a member of our vibrant community? If so, we invite you to experience working from our friendly and professional shared workspace for an entire day completely free of charge. MORE INFO
💻 25/10, 09:30 🗺️ Online: Online Coworking Session - Week 4: This event is designed to foster accountability and provide a sense of community as participants work together towards their goals. Whether you're a freelancer, entrepreneur, or remote worker, this virtual coworking session offers a platform to share ideas, seek advice, and celebrate achievements. MORE INFO
♣ 28/10, 15:00 🗺️ Glasgow: Biz Run Club - Glasgow: Welcome to Biz Run Club - where performance meets business growth. We're a community for entrepreneurs, founders, and senior leaders. MORE INFO
🎯 28/10, 17:00 🗺️ Edinburgh: SE & Innovate UK – Joint ways of working: funding and investment: Explore funding and investment opportunities and connect with investors at this event organised by Scottish Enterprise and Innovate UK. MORE INFO
🚩👷♀️ 29/10, 09:30 🗺️ Edinburgh: Future of Proptech in Scotland Chapter 2 Ideation: If you work in property, construction, built environment, proptech or tech this is the event for you. Bring your best thinking hats and get ready for a deep dive into what the future of proptech could look like. MORE INFO
🚩📢 29/10, 17:30 🗺️ Edinburgh: Transatlantic M&A: Sold in the USA!: Join Shepherd and Wedderburn’s Stephen Trombala as he leads a panel of entrepreneurs discussing how they started, financed, and grew their businesses, sharing key lessons, highs, and lows from their journeys. MORE INFO
📊 29/10, 18:00 🗺️ Edinburgh: Edinburgh Data Science + AI October Meetup: The fourth Edinburgh Data Science and AI meetup will be on Tuesday October 29th, from 6pm at the Bayes Centre at the University of Edinburgh George Square Campus! MORE INFO
👩🏻💻 29/10, 18:00 🗺️ Dundee: Dundee Data Meetup: Join us for an evening of insights into public sector data use and innovations, featuring two expert speakers from the Scottish Government and DeepMiner. MORE INFO
👔 30/10, 09:00 🗺️ Livingston: Employee Ownership Learning Journey: Join our trip across Edinburgh and the Lothians as we meet speakers from successful employee ownership-based businesses over two days. MORE INFO
♣ 30/10, 15:00 🗺️ Edinburgh: Biz Run Club - Edinburgh: Welcome to Biz Run Club - where performance meets business growth. We're a community for entrepreneurs, founders, and senior leaders. MORE INFO
💡 30/10, 15:30 🗺️ Kirkcaldy: Lightbulb Sessions: Fife Creative Tech Workshop and Meetup: The Lightbulb Sessions are monthly workshops looking at a different aspects of data driven theatre: From exploring what data driven tech is and how you could/should use it, to IP and contracts, from finding and commissioning technologists, to designing inclusivity and accessibility into new tech, to thinking about security and ecologically responsible tech. MORE INFO
🥂 30/10, 17:00 🗺️ Aberdeen: Data & AI Meetup: Aberdeen: From using data visualisation, modelling, and real-time simulation to inform architecture, urban regeneration and land management, through to optimising and monitoring energy usage and tracking carbon emissions, the potential for data & AI to enhance capabilities in this sector are immense. MORE INFO
💡 30/10, 18:00 🗺️ Aberdeen: Entrepreneurship: From Idea to Innovation - Women in Tech Aberdeen Meet-up: Do you have a groundbreaking tech idea but unsure how to turn it into a thriving business? Join Women in Tech Aberdeen, Barclays and AccelerateHer on the 30th of October at One Tech Hub for an inspiring and informative evening dedicated to tech entrepreneurship! MORE INFO
🤝 30/10, 18:00 🗺️ Edinburgh: Entrepreneurs Social Club (ESC) - October 2024: Skip the talks, presentations and lectures - in favour of going straight to the bar, where real connections are made! MORE INFO
🍺 30/10, 19:00 🗺️ Aberdeen: Aberdeen - Small99's People, Planet, Pint™: Sustainability Meetup: Pop down to your local People Planet Pint meetup to find more about what's going on locally with sustainability and how you can get involved. MORE INFO
👨🏾🦱 31/10, 12:00 🗺️ Edinburgh: Scottish Ethnic Minority Talent Summit and festival: The event will bring together new perspectives and deeper insights, focusing on developing talent pipelines and fostering a more inclusive future for Scotland’s economic growth and resilience. MORE INFO
🎃 31/10, 17:00 🗺️ Stirling: CodeBase Stirling Halloween Social: Get ready for a spooktacular evening with CodeBase this Halloween! Whether you're a long-time member or new to the Stirling community, join us for a fun-filled night of food, drinks, and lively conversations. MORE INFO
✨ 31/10, 17:00 🗺️ Aberdeen: AI Hype or AI Hope? Cutting through the noise - Startup Grind Scotland: Hear from 4x trailblazing startup founders as they reveal how AI has transformed their ventures, uncovering both the opportunities and challenges they’ve faced along the way. Plus, get expert insights from Builder AI on how to supercharge your business using AI technologies that really work. MORE INFO
🔗 05/11, 17:00 🗺️ Edinburgh: Blockchain Scotland Meetup: Guy Fawkes Special: Welcome to the Monthly Blockchain Scotland Meetup at the Bayes Centre in Edinburgh. The event takes place at the ground floor in G.03. MORE INFO
✏️ 05/11, 17:15 🗺️ Edinburgh: Barclays Eagle Labs and CodeBase monthly Quiz - Edinburgh: Join us for this month's pub quiz - bringing together the CodeBase and Edinburgh community for a bit of fun! MORE INFO
🍻 05/11, 17:30 🗺️ Edinburgh: Tech Meetup Edinburgh - November 2024: The Tech Meetup is a monthly excuse for the tech community around Scotland to network, learn and share new ideas! Come along to enjoy informative presentations from your peers, listen to exciting projects in the community and make some new connections. MORE INFO
🥂 05/11, 18:00 🗺️ Glasgow: Amplifying Voices IS BACK – Collab with Startup Grind x The Social Hub: Bringing together an incredible line up of individuals who are making waves in technology. Prepare to be inspired as we delve into the diverse journeys of founders and leading voices in the tech sphere, discovering firsthand how they carved their path into the world of technology. Don't miss this chance to network with fellow tech enthusiasts, learn from the best, and be part of an empowering community driving technological advancement forward! MORE INFO
🎤 06/11, 17:30 🗺️ Glasgow: Let's Talk Product: This event offers a highly informative and interactive session, providing valuable insights into the world of product management. Attendees will leave with practical advice, inspiration, and new connections from across Glasgow’s product community. MORE INFO
👨💼 07/11, 18:00 🗺️ Online: Scaling a B2B SaaS Startup without Hiring a Sales Team: Join us for a roundtable event focused on helping early-stage B2B SaaS startups build scalable sales processes that win and retain cold new business - without relying on a traditional sales team or personal networks. MORE INFO
🎯 Deadlines
📅 Applications are now open for the Net Zero Technology Centre’s TechX Clean Energy Accelerator: Start-ups can now apply for up to £50K in grant funding, expert mentorship, and access to an unrivalled industry network. The programme is seeking disruptive technology in CCUS & methane capture, low-carbon hydrogen, alternative fuels, and renewable energy.
Apply by 27 October at here or contact TechX@netzerotc.com
📣 Royal Academy of Engineering – Shott ScaleUp Accelerator Now Open:
Are you a senior business leader looking to scale up your engineering or tech SME? Apply now for 12 months of 1-2-1 coaching and leadership training with a grant up to £10k. Apply Here by 19 November
🚀 Nominations for the ScotlandIS 2025 Digital Technology Awards are open: Celebrating innovation and talent in Scotland's digital economy and marking its 15th year, the awards include 10 categories. Nominate here by 9 January 2025.
🇬🇧 Upcoming Innovate UK deadlines:
Innovate UK Smart grants: July 2024 Applications close 23 October
Innovate UK innovation loans future economy: Round 17 Applications close 30 October
Eureka Globalstars Japan Round 3 Applications close 4 December
Think someone would like this issue? Forward it to them! Check out previous issues by subscribing.
That’s all for this week - have a great one!
Team 🔥 Campfire