Advisers take work-now, pay-later path with start-ups
''The sheer complexity of the system is the biggest problem" ... David Kenney, Hall Chadwick partner. Photo: Rob Homer
Legal and accounting firms are cashing in on the start-up technology boom by guiding budding entrepreneurs through the government's complex, restrictive stock-options regime.
Employee stock-options plans offer discounted shares to employees in the hope of a financial benefit when the company's share price rises.
For cash-strapped, unlisted companies the options complement wages and secure skilled workers otherwise tempted by corporates' larger salaries. The plans are a cornerstone of Silicon Valley entrepreneurial culture, having underpinned growth of Apple, Google, Microsoft, and Facebook.
In the US, the tax is paid when the option vests. In Australia, companies must pay when the option is issued or acquired by employees. Successful start-ups such as Bigcommerce and business accelerator Starmate have denounced Australia's system, saying it is a disincentive for innovation.
But a section of the market has seized the opportunity. Tax and legal advisers are cutting costs to cater for the start-up sector, hoping to gain from their eventual success.
Hall Chadwick partner David Kenney said there is now huge demand for specialised tax advice.
''The sheer complexity of the system is the biggest problem,'' Mr Kenney said. ''On the one hand, you have the same rules that apply to executives of Australian banks, but they apply to a couple of young entrepreneurial people that have an idea and want to go out and create it … They have a vision, they have a strong idea, and they have to contend with some fairly complicated rules and need frequent advice to make sure they don't destroy their proposition.''
While larger firms can charge up to $30,000 to structure an options plan, smaller firms are doing it for $5000 to $10,000, and taking a long view on services.
Andrew Andreyev, principal at Adelaide-based Andreyev Doman, said rates were half to two-thirds of those charged by bigger counterparts. ''If we get involved in setting up a structure, putting in place shareholder agreements, etc, then the price of an option plan can be reduced, because we can spread the 'getting to know the client' cost across a number of components of advice,'' he said.
Mr Kenney said by providing services cheaply upfront, the firm can cash in when their clients grow and require high-value advice.
Hall Chadwick has created plans for tens of local start-ups, including high-profile companies such as Freelancer.com, Posse, and participants in the Startmate accelerator program. Several have gone on to raise millions of dollars and acquire other companies.