Presentation from Oslo StartUp Day: Options and Incentives

1. Options
Oslo Business Region | September 2016

2. A primer
share options //
 A Share option is a right to acquire shares in the future (no obligation)
 The price per share is called Strike Price
- Normally set as market price at time of allocation, but can be set at lower value
 Options give upside similar to owning shares in the company, but no downside
- Key differences are cash exposure and tax
 Options normally vest over a period of time
- Typically with 1/3 over 3 years
 The duration – or time to expiry – of an option is an important part of its value
 One key challenge in start-ups is that there is no liquidity in the shares
- Makes it difficult to exercise options that are “in the money” due to tax
 Options are taxed as income (~47%), not as capital gains (~25%) in Norway
- Not start-up friendly
- Taxed when you exercise option, not when you are allocated an option.

3. An example
share options //
 You are allocated 10 000 options
 Strike price is NOK 10 with vesting 1/3 over 3 years
- NOK 10 is equal to share price at time of allocation
 After 3 years, the share price has increased to NOK 100
 You then exercise all options, i.e. you buy 10 000 shares at NOK 10
 Your gain is NOK 90 per share, in total NOK 900 000
 You are taxed as if it was income in Norway (~47%)
- Even if you don’t sell the shares
 The company has to pay “arbeidsgiveravgift”
 If you can sell the shares immediately, that is an advantage, because you will
need money to pay the tax bill
 Any later gains on shares owned will be taxed as capital gain (~25%)

4. What we typically see
share options//
 In Norway, a typical option pool represents ~10% of shares, often less
- In the US, typically 15-20%. Employees in US start-ups expect an option plan
 Size of program depends on how “for hire” vs. “founders” the team is
 Some companies allocate the same amount to all employees, some reserve
the program for a few key employees
 The most common is a balanced approach, where allocation depends on
1) Salary, 2) Position/Seniority) and 3) When you get hired
 Normally, founders do not participate, they own shares
 Some employees don’t appreciate options, they view them with skepticism…

5. Option pools in the us
share options //

6. We like everybody to have a stake
alliance venture’s view//
 We prefer employees owning shares
- Gives both upside and downside
- More tax efficient
 If you keep company valuations low initially, it is easier for key hires to become
shareholders
 Key benefits with options: Give stakeholders a free upside (no investment
needed at grant) while conserving company cash
 We believe options could be a much more powerful tool in Norway if tax was
fixed (e.g. approved schemes)
 We prefer a balanced approach in option programs
- Most options allocated to key employees, but everybody gets a small allocation

7. Governance& Practicalities
share options //
 Allocating shares is an ownership issue
- New shares have to be approve by the General Meeting
- Allocating options potentially dilutes the other shareholders
 Some authority is often delegated to Board of Directors
 The BoD often delegate some authority to CEO
 Use a standard option agreement
 Try to use fixed dates, i.e. that options vest from a certain date, so that
employees do not have individual starting dates
 Keep good overview of option grants together with your cap table/shareholder
registry
 Give yourself flexibility to extend program (expiry date)

8. Thank you!
Johan Gjesdahl, Partner
johan@allianceventure.com
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