Growth shares are a special class of shares designed to benefit only from the future increase in a company’s value, above a set hurdle price.
Growth Shares Meaning
The growth shares' meaning centres on incentivising future performance without giving away existing value. To define growth shares in practice, they only participate in company value once a predefined threshold, often today’s valuation plus a return hurdle, is exceeded. A clear growth shares definition makes them especially popular for employee incentives, management rewards, and founder restructuring, where existing shareholders want to protect current value. Unlike ordinary shares, growth shares carry limited downside but significant upside if the company performs well. Growth shares stand for targeted motivation aligned purely with future growth.
How Growth Shares Work
Growth shares are typically structured so that they have limited or no value at the time of issue. A hurdle price is set, often based on the company’s current valuation, and only value created above that level is shared with growth shareholders.
If the company grows and exceeds this threshold, growth shareholders participate in the increase in value. If not, the shares may have little or no economic benefit.
Growth Shares vs Ordinary Shares
Unlike ordinary shares, which participate fully in dividends and capital from the outset, growth shares are restricted to future gains. This makes them particularly useful when companies want to incentivise new contributors without affecting existing ownership value.
They may also have different voting or dividend rights, depending on how they are structured in the Articles of Association.
Growth Shares and Incentives
Growth shares are often used as part of broader equity compensation strategies. They provide a way to reward performance while maintaining a clean Cap Table (Capitalisation Table) and limiting immediate dilution.
They are especially relevant for companies that are past the earliest stages and want to bring in senior talent without using traditional option schemes.
Why Growth Shares Matter
Growth shares offer flexibility in equity design. They allow companies to balance fairness between existing shareholders and new contributors while aligning incentives with long-term value creation.
For employees, they represent an opportunity to participate in future success. For founders and investors, they help preserve current ownership value.
Ultimately, growth shares stand for targeted incentive, rewarding contribution to growth rather than past ownership.
How UndoCapital supports growth share structures
Undo Capital helps founders design growth shares by aligning valuation hurdles, participation rights and cap table impact with company strategy. This includes structuring growth share terms, modelling dilution and exit outcomes, and ensuring consistency with Articles and investor expectations, so teams are incentivised effectively while preserving founder and investor value.
FAQs
What are growth shares in simple terms?
Growth shares are shares that only gain value if a company grows beyond a set threshold, allowing holders to benefit from future increases in valuation.
Why do companies use growth shares?
They are used to incentivise employees or key stakeholders without diluting existing shareholders’ current value, focusing rewards on future performance.
How are growth shares different from ordinary shares?
Ordinary shares have immediate value and full rights, while growth shares only participate in value created after a specified hurdle is reached.
Do growth shares have voting rights?
They may have limited or no voting rights, depending on how they are structured in the company’s Articles of Association.
Are growth shares included in dilution calculations?
Yes, they are typically included in fully diluted ownership and must be considered when assessing the company’s equity structure.
Disclosure Notice: This communication is issued by Undo Capital Limited (“Undo Capital”) and is provided strictly for informational purposes only. It contains general information and should not be relied upon as accounting, business, financial, investment, legal, tax, or other professional advice. Undo Capital is not regulated by the Financial Conduct Authority (FCA) and does not provide investment, financial, or tax advice. Our services are designed to assist startups and businesses with company formation, legal agreements, and funding-related documentation. Nothing in this communication constitutes, or should be construed as, a recommendation, offer, or solicitation to purchase or sell any security or financial instrument.
Participation in startups and early-stage enterprises involves significant risk. Such investments may be illiquid, may not generate dividends, may be subject to dilution, and may result in the total loss of invested capital. Any decisions or actions that may affect your business or personal interests should be taken only after seeking advice from suitably qualified professional advisors, and should form part of a balanced and diversified portfolio. This communication may contain links to third-party websites. The inclusion of such links does not imply endorsement, approval, investigation, or verification by Undo Capital. We accept no responsibility or liability for the content, accuracy, or use of information contained on any third-party websites.
