Yesterday’s announcement of long-awaited reforms to employee share option (ESOP) taxation yesterday actually could have come at a better time. Like: any year less than 2014. But in response to frequent and enthusiastic lobbying from our industry, the laws will change from 1 July 2015.
The good news is: For Australian startups doing less than $50M turnover, not listed on the ASX and incorporated for less than 10 years will now be able to offer their employees share options the way startups in Silicon Valley are able to: without those options incurring a tax liability until they’re exercised and converted to shares.
And not just share options: we can also offer employees an employee share purchase plan, allowing them to buy company shares at a discount and not be taxed on their value until they are sold, as long as they’re held for at least three years.
Since the majority of great startup talent leaving Australia heads for Silicon Valley, this change helps us keep the best Australian talent in Australia by ensuring we can match some of the long-term employment benefits seen in the US.
The impact could be big, it could be small, but I’m betting it will be huge. Until now, Australian startup professionals have fallen into three broad classes: investors, founders, and employees, and only the first two have benefited from the value created by the rapid growth of the startups they create together.
Taking a startup job for someone else’s startup has meant working crazy hours at below market rates with no job security and ultimately, none of the upside. You’d only do it to learn the skills you need to become a startup founder yourself. Which has created an Australian startup community of many small, under-staffed startups, founded by people who’ve never been a startup founder before.
ESOPs and employee share purchase plans help spread the potential market value of a startup beyond the founding team to a company of 10, 30, 50 or 100 employees. It should mean Australia can create valuable businesses other than those two-sided marketplace titans we’re best known for internationally, businesses that don’t need to focus so much on revenue growth and can perhaps achieve a $1B valuation on the strength of their intellectual property and global customer engagement alone.
Hopefully, this is just a first step, because it would suck to be Matt Barrie right now, or any of the other Australian startup CEOs left outside the ESOP reforms by being ASX listed, doing more than $50M turnover or in business for more than ten years. Freelancer.com doesn’t need to use ESOP plans to achieve its goals — it’s been achieving them in spite of it. But still, to have lobbied so publicly and explicitly and then to miss out? That sucks.
BlueChilli’s got less than eight years remaining before we’re excluded too, so I better pull my socks up and get to work on being ready to roll out our ESOP as soon as 1 July comes.
All of us who’ve lobbied for these changes should be pleased to see that when we work together as an industry (or more realistically, even when we all work separately towards the same goal) we can make ourselves heard and achieve change. Let’s not stop here.