Alternative participation models for co-founders: Hurdle shares and negative liquidation preferences

April 17, 2024
Start-up founders discuss alternative participation models for employee shareholdings

Alternative investment models

In the start-up world Founder:inside often face the challenge of how to effectively involve new team members. While Virtual Stock Options (VSOPs) Although they offer advantages, there are also limits, particularly in terms of voting rights and tax efficiency. Therefore, alternative participation models such as HurdleShares and Negative liquidation preferences popularity. 

Hurdle shares

This alternative investment model offers real shares without immediate tax charges. The tax burden is shifted to capital gains tax in the event of an exit event, which offers considerable advantages.

Negative liquidation preferences

This alternative participation model grants Co-founder:innen a preferential claim to the exit proceeds without bearing full responsibility for losses. And thus ensures better integration of new Co-founder:inside. 

Conclusion

Choosing the right investment model is crucial for the long-term success of your business. Startups. Alternative participation models such as HurdleShares and negative liquidation preferences offer interesting advantages and you should therefore take a close look at whether you want to use them to involve your employees.