🐞 Raise for Beta Bugs, New fund, Turing Fest Founders Dinners, EMI Options Deep Dive
Here's your Campfire for the 23rd of October, 2023. Find today's deep dive on how to think about option pools ahead of your first institutional fundraise below.
Before we begin: Fill out the Founders Survey and share your views about the investment landscape in Scotland. It's an entirely volunteer-led initiative, so we need the support of the community. You can use this link for sharing.
💼 This issue of Campfire is sponsored by Shepherd and Wedderburn's initiative to supercharge start-ups and scale-ups. Be sure to follow the Start to Scale LinkedIn page for useful videos and posts designed to help founders.
🌊 Updates & Opinions
🐞 Edinburgh-based Beta Bugs (genetically engineered insect eggs for alternative protein farming) has raised £1.72m from Tricapital Syndicate, SIS Ventures, Scottish Enterprise, Beeches Group, and Climate.vc. UKTN TS
💰 New fund: Par Equity announced its first close of a £67m (target £100m) growth fund with investments from Scottish National Investment Bank, Strathclyde Pension Fund and British Business Investments. FS UKTN DGT IN TS
🍴 The last of the Turing Fest Founders Dinners of the year is this week in Edinburgh on the 26th and there are only few spots left. The two fireside interviews this time are Roy Hotrabvhanon, CEO of PlayerData and Rob Jones, CPO of Vault, co-founder of FanDuel. Apply here.
📣 Asks & Offers
📣 We've launched the Founders Survey! Please fill it out, it takes less time than you spend making that artisanal pour-over coffee in the morning. If you have a mailing list of startup founders, and would be willing to share the survey, let us know!
🔒 Cyber Security Questionnaire: Rada Cyber Security is looking for anyone working in small or medium sized businesses in Scotland to fill out a quick questionnaire about cyber security to help in their research: Answer here.
👭 Interested in connecting with possible co-founders? Fill in your listing on Cofounder Curious today! Connect with others for possible cofounder matching here.
🤝 Geovation Mentorship Programme 2024 is now open! Are you ready to elevate both your personal and professional path Geovation’s Mentorship Programme provides a one-to-one mentoring experience, crafted to suit your unique aspirations. 👉 Apply Here. Deadline 16th Nov.
✍️ Want to write something for Campfire? Have an opinion you'd like to share? get in touch!
🦸 The Deep Dive: legal things to get right early to avoid messes down the line, Part One
A few weeks back I sat down with John Morrison and Stephen Trombala, partners at Shepherd and Wedderburn. They were kind enough to patiently answer a whole host of questions I had about startup legals. This is part one of a series about simple things you can do early to save time and money later when planning your first institutional fundraise.
Picture this: you and your cofounders have been working on your proof of concept and diving deep into the problem. You might have a few angels on board already, but now you see a vision, and know it's going to require some significant investment to get to the next inflection point, and you're starting to get some bites from investors interested in what you're building.
Having worked on hundreds of deals from pre-seed to cross-border rounds, to M&A and exit, I thought it would be valuable to get Shepherd and Wedderburn’s take on areas founders should be thinking about when planning their first considerable fundraise. Over the next few weeks, we'll be sharing three areas worth learning about to save you the most amount of headaches (and cash) down the line.
Part One: Options pools and the tax issues that could come back to bite you
Share options are a great way to offer incentives for employees, and often come into play when going through a fundraise. It's important, however, to ensure you think about how these options are going to be administered and dealt with over time. Dealing with the administration around share options doesn't have to be onerous, but timing is quite important. A few questions you should ask yourself:
How is the option pool going to be run? i.e. Who would get options?
When are options exercisable? i.e. When should employees actually be able to get the shares – only on an exit, after the passage of time, or on achieving milestones? How would that affect the future shareholder-base?
How will it be potentially refreshed in future financing rounds?
What is the plan for how to use that option pool – i.e. are you making annual grants, top-up awards, or just for new joiners?
It’s easy to overcomplicate options so keep it simple. If you can’t explain what the options are all about in an elevator pitch, then how are the employees meant to understand them?
Many founders will assume they should allocate most (or even all) of the options from the pool to individuals immediately, which would result in no further options being available. Certainly, early options should have the potential to deliver the biggest upside, but be mindful of the fact that the pool should also be available for future hires/ further incentives. Also, the more complex you make the options, the greater the scope for unexpected outcomes.
Another point to consider relates to EMI (Enterprise Management Incentive) options and HMRC valuations. EMI options are a fantastic way to offer upside with tax efficiency. To achieve that upside tax efficiency, you do need to navigate a minefield of potential challenges. If you aren't careful about making sure to do your HMRC valuation filings or don't keep a record of everything you've done around the scheme, you run the risk that when you do get to the exit, the reality won't fit with what you (and the option holders) had expected. By that time it might be too late to do anything to avoid the tax leakage (which can be significant).
<nerdy-aside>HMRC valuations are important because they determine share option value, and the extent to which you're taxed following a share purchase or an exit event like an IPO or an acquisition. There are often different approaches that founders are encouraged to pursue when it comes to HMRC valuations before and after a fundraise (or an M&A) and if you forget to factor in recent transactions or ones that are on the table, then there's a tax consequence of getting that wrong. </nerdy-aside>
Another area that might seem bizarre, but weirdly causes all sorts of headaches, is the order of signing of various documents. You might look as if you have all the signed docs in hand, but if they were signed in the wrong order or not at the right time, this can have significant consequences.
To nerd out slightly again, John and Stephen shared a couple of examples: if you don't, for instance, sign your option agreements when the company qualifies to grant EMI options or the individuals are eligible to receive them, the tax benefit treatment will be lost. Similarly, if Section 431 Elections are not signed within the relevant period from when the employees actually get the shares, then it becomes a tax issue you've got to consider down the line as well (taxes, man).
Ok, so you’ve granted your EMI options and signed your documents. Job done? No! It is critical that the EMI options are notified online to HMRC by the deadline. Top tip: take screenshots as you go to demonstrate what information has been submitted – once you’re done, you can’t log in again to check what you sent.
I know it might sound confusing, but honestly, don't be scared by it. This stuff really isn't rocket-science, but it's important to take the time in the short term to know what you need to do and develop a plan so that you and your team don't get screwed (mainly by HMRC) out of the upside that you’ve earned.
And if you're like me and this stuff makes you yearn for that four hour one-man show your friend is begging you to watch (I got the invite Carl 🤦♂️ ), then ask a solicitor to help you know what you need to know. Your solicitor should be able to advise on this and keep you right, just don't forget to keep them in the loop!
Stay tuned for Part Two: Investor Rights, coming next.
Shepherd & Wedderburn's innovative and personable approach helps companies from first incorporation onwards (including through to an exit – if that’s the goal). Their global reach means they can scale and grow with you, like they have with clients like Epic Games, FanDuel, TwoBigEars, Optoscribe and TVSquared. They even have a dedicated share options team who specialise in the topics discussed in this Part One.
👉 To learn more, check out the Start to Scale LinkedIn page for useful videos and posts designed to help early stage founders and send an email email@example.com & set up a chat.
🛋️ 23/10, 11:00 🗺️ Glasgow: Celebrating Black History Month: A roundtable with black founders: joined by guest speaker, Tynah Matembe, founder of Moneymatix who will join us as we explore how Scotland’s ecosystem could progress inclusivity of the untapped skills, talent and innovation within BIPOC communities. MORE INFO
🤝 25/10, 09:30 🗺️ Dumfries: Coworking Day [South of Scotland]: you can join us for startup chat, networking, and to get to know you local tech-curious peers. MORE INFO
🧬 25/10, 14:00 🗺️ Edinburgh: Foundations of Investment Readiness: This event will provide aspiring companies with a high level introduction into areas for consideration when seeking to raise investment. MORE INFO
📝 25/10, 17:15 🗺️ Edinburgh: Barclays and CodeBase, Edinburgh's monthly quiz!!: Join us for this month's pub quiz - bringing together the CodeBase and Edinburgh community for a bit of fun! MORE INFO
🎂 25/10, 17:30 🗺️ Edinburgh: The Melting Pot - 16th Birthday: From coworking to venue hire, business incubation to events, we’ve helped countless individuals, organisations and start-ups along their professional journey. MORE INFO
👥 25/10, 18:30 🗺️ Edinburgh: Entrepreneurs Social Club (ESC) - Edinburgh Startup Meetup: The social club for founders and aspiring entrepreneurs - skip the talks, presentations and lectures - and go straight to networking. MORE INFO
📡 26/10, 08:30 🗺️ Glasgow: Futurescot - Digital Glasgow 2023: supported by The Times Scotland, will bring together policymakers, business leaders, educators and community stakeholders to explore the opportunities and challenges of economic growth and digital transformation across the city. MORE INFO
👩🎓 26/10, 12:00 🗺️ Glasgow: AccelerateHER + Techscaler Meetup: Glasgow and West: Techscaler is a Scottish Government funded programme, delivered by CodeBase, and offers tailored support for everyone in Scotland who wants to build a startup, whether they are considering a career in startups or are developing, building and scaling an idea. MORE INFO
🏳️🌈 26/10, 12:30 🗺️ Edinburgh: LGBTQ+ Meetup: Our meetup has been created as a space for LGBTQ+ people and allies working in the Scottish Tech Ecosystem to meet and discuss how we can make our spaces more inclusive to queer individuals. MORE INFO
🌐 26/10, 15:00 🗺️ Online: Startup First Steps Explainer Webinar: This course is designed for current or prospective early-stage startup founders in Scotland who want to learn from and connect with CodeBase representatives, regional partners, ecosystem stakeholders, and members of the tech community. MORE INFO
🎃 26/10, 17:30 🗺️ Inverness: Inverness Monthly Social: The Halloween Edition: The first in our monthly series of social events, to give people in the tech community an opportunity to get together. MORE INFO
🥍 26/10, 18:00 🗺️ Edinburgh: The Entrepreneurial Shift: Embracing the Unknown: around entrepreneurship and jumping into the deep end of founding your own company. MORE INFO
🍽️ 26/10, 18:00 🗺️ Edinburgh: Founders Dinners: Where founders & execs of product startups relax together and connect with peers over food and drinks. MORE INFO
🚀 26/10, 18:30 🗺️ Dundee: EdenTay Founders Community - Launch Event: an exceptional collaboration between the entrepreneurial centres from three universities in the region: Abertay (Bell Street Ventures), St Andrews (St Andrews Innovation), and Dundee (Centre for Entrepreneurship). MORE INFO
👔 30/10, 11:30 🗺️ McLeod St: Scottish Black Talent Summit & Hiring Fair 2023: The two-day hiring fair and summit is designed to host black talent, talent acquisition and HR professionals, diversity and inclusion experts, industry players, government and local authorities’ representatives, as well as university communities. MORE INFO
🤝 30/10, 18:00 🗺️ Edinburgh: Startup Founders Meetup: Each month, we'll have a combination of tactical fireside chats with experienced entrepreneurs and plenty of opportunities to network with other founders, potential cofounders, and investors. MORE INFO
👨⚕️ 31/10, 09:00 🗺️ Edinburgh: Skills Workshop: Web Accessibility: explore the foundations of accessible web design for If you are involved in product or service design at any stage, then you are a designer who can make someone's life better or miserable. MORE INFO
💽 31/10, 18:00 🗺️ Dundee: Dundee Data Meetup: a vibrant community-driven event that brings together curious learners, data enthusiasts and professionals to explore the captivating world of data and its applications. MORE INFO
☕ Series: Unfiltered: Connect with members of the local tech community, the coffee is on us!
📆 01/11, 08:30 🗺️ Edinburgh MORE INFO
📆 01/11, 08:30 🗺️ Glasgow MORE INFO
📆 01/11, 08:30 🗺️ Aberdeen MORE INFO
📆 01/11, 08:30 🗺️ Inverness MORE INFO
📆 01/11, 08:30 🗺️ Stirling MORE INFO
📆 01/11, 08:30 🗺️ Dundee MORE INFO
👩💻 01/11, 09:30 🗺️ Edinburgh: Female Founders Rise X Edinburgh: Female Founders Rise is a community of over 2000 female founders in the UK coming together for collaboration, growth and support. MORE INFO
🎧 02/11, 08:00 🗺️ Edinburgh: Super-duper user programs: Our Scottish meet-ups continue after the summer break with a focus on Superuser programs for Community. The Spotify team will kick off by sharing some background on the Spotify Stars before we open the floor to discuss the many things to consider: recruitment, onboarding, incentives, diversity, events, ROI and much much more. MORE INFO
🤝 02/11, 12:00 🗺️ Edinburgh: AccelerateHER + Techscaler Meetup: Edinburgh and Lothians: Techscaler is a programme, run by CodeBase, that creates, develops, and scales startups by connecting founders with experts, teaching world-class playbooks, and hosting spaces for fellow founders to work and hang out. MORE INFO
🎫 02/11, 17:00 🗺️ Glasgow: Tech Summit 2023: The biggest event in the CENSIS calendar is our annual conference, the Technology Summit. Join us in person in November 2023 to mark 10 years of CENSIS innovation in Scotland. This is an in-person event only and we will not be live streaming any parts of the day. MORE INFO
👥 02/11, 20:00 🗺️ Glasgow: Tech Meetup November: Tech Meetup is a generalist event for everyone in the Glasgow tech community. We welcome people with all levels of experience . Even if you are starting your journey into tech as a student or bootcamper or your thinking of starting your development career, you are more than welcome. MORE INFO
🇬🇧 Upcoming Innovate UK deadlines:
SSPP: Liquid food and beverages in refillable packaging Applications close 25 October
Collaborative AI Solutions to improve productivity in key sectors Applications close 8 November
MyWorld Collaborative Research and Development: Round 2 Applications close 23 November
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That’s all for this week - have a great one!