Understanding Growth Shares

Using equity is a tried and tested method to help recruit, retain and incentivise key employees and align their interests with shareholders. One commonly used structure involves 'growth shares'.

What are growth shares?

Growth shares are a special class of share which allow employees to benefit from the company's growth above a predetermined valuation 'hurdle'. Essentially, growth shares reward individuals for the value added to the company after they acquire the shares.

How do they operate?

The best way to understand how growth shares operate is by way of an example:

Company X has a value of £9,000,000. Growth shares are issued with a valuation hurdle of £10,000,000. Employee A subscribes for 10% of the issued share capital in the form of growth shares which only serve to benefit if the company reaches its target value of £10 million. The market value for the growth shares is relatively modest and this is no higher than the price paid by the individual.