Virtual Stock Options

October 19, 2017

 

Virtual Stock options is a question which comes up increasingly often for UK based employers. Stock options can be a very effective device in recruitment and retention but are a bit onerous administratively for the small business. There are various tax advantages of traditional stock option programmes like the EMI scheme but cumbersome and expensive to manage.

 

For the small business traditional option schemes can be very emotive as earlier employees in a company doing the same job often end up with much more equity than later joiners.

In the UK the idea of ‘virtual stock options’ is gaining popularity, in essence these are bonus schemes but a great way to tie in and motivate employees to the future success and value of a business. As revenue grows so does the notional value of a business and a ‘virtual option’ programme is of value to the employee. As much as anything else, employees are focussed on doing their roles to the extent that value is created.

 

Virtual options have several advantages. Among these are no dilution of equity to the owner’s holding in a business, which also makes life very clear and easy for the angel or other future investors to a business. Also, employees do not have to wait for full vesting cliffs to occur to receive their ‘share’ of the gain in value of a business. Importantly, there is no reporting requirement to HMRC in virtual options.

 

There are various ways to word such virtual option agreements, some of the things to bear in mind are capping the value, the timing of payments and the timeframe of such options.

 

Effective spend for sales and marketing for the small business/start up       

 

It’s a bit counter-intuitive but as an accountant I’m asked all the time what’s the best way and by that I think they mean most cost effective way of doing sales and marketing.

Well, I’ve seen certain strategies work well and others not so well. I think a large part of your spend needs to reflect how sales and marketing in the technology world has changed dramatically in the last couple of years.

 

The natural aversion most buyers have towards sales people has become more acute, largely because of time in the day. 10 or even 5 years ago there simply wasn’t the proliferation of technology vendors we see today. If a buyer has 10 minutes of spare time in the day it’s a safe bet to assume they don’t want to talk to sales guy pushing their product that they’ve a natural bias to.

Buyers are ‘smarter’ than they were in the past. By that I mean there’s a gargantuan pile of information much more readily available to buyers today than in the past. So what’s key to me is messaging. Most importantly of all your website needs to exude value to a buyer, value means expressing the solution to common problems your buyers would have. Although buyers don’t want to talk sales it’s still the job to research and evaluate the best solution for them, and research they will.

Traditional lead generation, with call machine operatives dialling untargeted all day is pretty much the definitive chocolate teapot, and unless you’re more than reasonably certain the outcome is positive don’t spend your cash here. This doesn’t seem to work now for the time reasons of buyers above but more particularly because such call machines no matter how hungry, keen and enthusiastic they might be, will rarely know the detail a prospective buyer has to know, a switched off buyer can’t be much of a prospect.

 

Profiling is key. It amazes me how seldom companies know the profile of their classic buyer and how many potential buyers there actually are. It could be this point is so blindingly obvious that it’s taken for granted. If you’ve got the profile then you can message your solution to their problem. So, if the buyer’s job is to evaluate the technology or your offering and it purports to their situation your chances of a captive audience have just increased exponentially.

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