Growth shares are a form of equity that only delivers value once the company exceeds a predetermined hurdle — typically a valuation or share price set at grant.

How it works

When growth shares are issued, a hurdle is defined — for example, the company must reach a valuation 50% above today’s price before those shares participate in proceeds. Until the hurdle is cleared, growth shares have no economic value on exit or sale. This structure is common in the UK and increasingly elsewhere for employee incentives at mature private companies. Unlike standard options, growth shares often involve actual share ownership from day one, but with a built-in threshold. On a liquidity event, proceeds are split: existing shareholders receive value up to the hurdle; growth share holders share in everything above it.

Why it matters

• Founders: Growth shares can attract senior talent when the cap table is already crowded and plain-vanilla options would be underwater or too dilutive.
• Investors: Hurdle levels must be set carefully — too low and new grants eat into existing holders; too high and incentives fail.

Common mistake

Treating growth shares like ordinary options. They have different tax treatment, voting rights, and payout mechanics depending on jurisdiction and company articles.

Related ideas

Hurdle shares, employee stock options, phantom equity, and carried interest hurdles use similar threshold logic in different contexts.