Vestd is the UK’s first and only regulated share scheme & equity management platform for SMEs. There was a time when share schemes for employees and shareholders were thought to be a highly dangerous route to giving away precious equity, but Vestd is disrupting old notions.
I spoke to co-founder Ifty Nasir to find out more about his journey and also about the different share schemes available and why he so passionately believes that this is an excellent solution for companies in so many ways.
Ifty grew up in Yorkshire and went through the experience of trying to set up a company called Computer-Aided Real Estate, which was essentially a precursor to Rightmove or Zoopla. He couldn’t get the support he needed from the Regional Enterprise Council and was forced to shelve the idea.
Instead, Ifty became one of the youngest group leaders at BP and, he says, ended up doing all sorts of exciting work, which helped lead him to where he is today. The opportunity also allowed him to study at Stanford on their Senior Executive Programme. He spent twenty years with BP traveling the world.
In 2014, this led Ifty to take the big step away from corporate life. Ifty says that he knew he wanted to set something up to support start-ups. But he realized that his knowledge of contemporary start-up challenges probably wasn’t in line with what today’s founders might be facing. Therefore, he set up Vestd as a research tool to find out what those challenges were – this was to inform the shape of Inaverve, his initial start-up.
He quickly discovered that the bulk of challenges came from managing equity and getting people to participate in businesses with limited budgets. Ifty says, “It’s not just cash that builds a business, it’s effort, talent, strategy. These can come from consultants, advisors, marketing specialists, and researchers; how do you get them to contribute if you don’t have deep pockets to pay market leading salaries? He realized that Vestd had a use in its own right and that it was the business that we were looking for.”
He pivoted away from Inaverve to focus on Vestd.
The Solution lay in Equity Economy and Vestd.
Ifty launched Vestd in 2014 with his business partner, Navid Akram. To start the business, they put up around half the money themselves. The rest came from third-party investors and contributors who bought into the company in different schemes. They then realized they would have to become FCA authorized and regulated to succeed, but it was tough to achieve it as a new concept.
Vestd is an equity management platform that enables founders to share equity through different share schemes for the double benefit of unlocking the needed cash and incentivizing key people involved. They offer share schemes for employees, NEDs, advisors, and consultants, so people they had seen who wanted to be involved and share expertise could do so without substantial financial risk. Both sides gain.
Ifty says that the result transforms relationships with stakeholders, gaining loyalty, advocacy, commitment, and capability. Vestd makes it all easy to achieve what they sum up as “share schemes for remarkable teams.”
Share schemes can solve the lack of cash and give entrepreneurs access to people with skills they would not usually attract. Vestd discovered it also solves a third pain point, idea validation, and if need be, re-designing. The input the start-ups get often inspire better concepts.
About 15-20% of their customers for share schemes and equity management are start-ups. They serve a broad demographic of companies switching to digital or establishing their share schemes for the first time. They are a platform that makes it easy to distribute and digitally manage your equity.
Incredibly, even in a year of disturbance and turbulence like 2020, Vestd has more than doubled in size. It’s clear that there’s a real resonance with founders and CEOs, and the platform goes from strength to strength.
Vestd foregrounds the importance of the wider team and rewards everybody fairly. Every day, every employee has 100 marginal choices to make. The business leader’s primary challenge is how to get people to make those decisions in favor of your enterprise. Vestd share schemes create advocates out of employees and form cultures of success. As Ifty says, who wouldn’t want that?
What the Vestd Team Provides
Companies must set up any equity-related scheme in a compliant and legal manner, and Vestd helps them do that. There are no corporate responsibilities for the individual /recipient, except for them fulfilling whatever commitment they made to the business as their part of receiving the shares or options. For example, this might be to stay with the company for a given period or develop x y or z.
Vestd has ensured a safe way for parties on both sides when previously, employee share schemes were often fraught with problems. A fundamental part of the Vestd platform structure is that if an individual delivers what they committed to at the outset, they get their reward under the best economic conditions possible. Conversely, if they fail to achieve, there are mechanisms to protect the founder’s assets. This set-up ensures that fulfilled commitments are exchanged fairly for promised equity. If somebody doesn’t keep up their end of the bargain, the equity is never released.
All schemes are reversible, and all have a mechanism for shares and options to vest based on performance or time put in. The platform is, therefore, a safe place for both founders and recipients.
They have found that team members become more incentivized when offered shares or options. The Ownership Effect is a powerful force in driving participation. Enterprise is enhanced by giving all stakeholders a slice of the pie. If somebody has skin in the game, it improves their performance and encourages them to make pro-business decisions more frequently—everybody in the company benefits.
Traditionally, we are conditioned to believe that giving away equity is a bad thing to do. Ifty and Naveed believe that concept to be faulty.
Surveying 500 businesses in 2020, they found that nearly half were re-thinking the way they operate, and one in four are now offering shared ownership. Ifty says that people look at ways to proactively make a difference to their company and become more integral. Also, companies are desperate to retain talent without costing themselves cash they haven’t got.
The Vestd platform mitigates all the old issues around introducing too much equity complexity too early on or not setting out your quid pro quo clearly enough. They can set your schemes up so that they are conditional, most commonly on delivery or time committed, and help to set up commitments so that they are measurable, tangible, and fair.
Ifty says that “If you have things that are too complex, or if your condition agreements are not measurable or tangible, then that’s where you will have a danger down the line. Subjectivity is not a healthy component of equity share schemes. Shared equity has proven results to increase performance, company cash flow, loyalty, and company culture.
The most popular way of doing these are:
- EMI Option Schemes (used by 41% of SMEs who offer schemes) – the most tax-efficient of all, with recipients paying just 10% CGT on any gains. It gets better: the company can offset both the scheme’s cost and the tax benefits achieved by employees against its tax liability. EMI schemes allow employers to set various conditions to govern the release of equity, such as time-based or performance milestones. The vesting schedule can also be customized in multiple different ways.
- Ordinary Share Schemes (used by 35%) – These get people in the game with immediate effect, unlike options, and these are subject to a vesting period of typically three or four years.
- Growth-Share Schemes (used by 31%) – This is an excellent approach for founders who have built up some existing value in their company. Recipients only share in the business’s capital growth from the point at which the shares are issued. Growth shares can be given to anyone, and conditions can be attached. These shares also limit the recipient’s risk of paying income tax on receipt of the equity.
- Share Incentive Plan – SIP (used by 23%) – A tax-efficient, all-employee plan which provides companies with the flexibility to tailor it to meet their business needs.
- Unapproved Options (used by 22%) provide the most flexibility and are the easiest to set up. They do not require any HMRC approval and can be given to anyone, but are not as tax efficient as EMI schemes.
- Save as you Earn – SAYE (used by 18%) – a monthly saving scheme that gives you a tax-free bonus and an option to buy shares in your company at the end of the scheme.
I asked Ifty to sum up the advantages of share schemes run by a proper equity management platform. He says,
“If you believe in the Ownership Effect, which I passionately do, then why would you not want everybody to participate? When everybody has an interest in the business’s success, and your relationship is not just transactional (i.e., you are paid a salary), then the dynamic changes to one of the long-term shared rewards. On a portfolio basis, those companies that offer shares will do better. On a risk/probability basis, equity participation will enable a company to do better in the long run.”
If you are looking for funding you might also enjoy Oliver Woolley‘s wisdom on the subject.