How EMI options fit into your fundraising journey

When you’re building a startup, you’re spinning a lot of plates: raising, growing, strategising, hiring - all of which will affect the decisions you make.

It’s likely that you already know the benefits of setting up an EMI scheme, but just want to know where this all fits into your growth plans. When is the best time to do it? 

The answer is… it depends. The timing of your EMI scheme (and the EMI valuation that comes with it) will have a huge impact on your team’s future gains. But it’s not a one-size-fits-all decision.

Let’s take a look at the key considerations so you can plan ahead and pick the right moment for your company:

First things first: What’s an EMI valuation?

Before you can grant EMI options, HMRC should make a decision on how much your shares are worth. This is called an EMI valuation.

When you’re fundraising, it’s likely that you’ll want a higher valuation, so you can give away less equity for the same price. With an EMI valuation, you’re aiming for the opposite: the lowest valuation possible.

The lower the EMI valuation, the lower the exercise price for your employees, and the higher the potential upside is. This will also increase the amount of tax relief you can claim back as an employer, so a low EMI valuation is a win-win. 

That said, rushing to set up an EMI scheme and secure a valuation too early may not align with your wider growth plans. In some cases, it can end up being unnecessary admin and added cost. 

The key thing to remember is that EMI isn’t a one-size-fits-all solution, timing should work hand-in-hand with your hiring and fundraising strategy.

Why does timing matter so much?

Here’s a quick overview: 

• Before you raise investment: Your company’s value is usually at its lowest, or perhaps even zero, if you’ve just incorporated. This is the sweet spot if you’re prioritising a low EMI valuation.

• After you raise investment: HMRC will likely reference your most recent funding round. Post-investment, you’ll have a higher valuation, and therefore a higher exercise price for employees.

So the general advice is: set up your EMI scheme and apply for your EMI valuation before you fundraise.

But as always, things aren’t quite that simple.

The catch: EMI valuations don’t last forever

Once an EMI valuation is set, it doesn’t have unlimited validity. This is where timing is key when deciding whether you need an EMI valuation: 

• HMRC typically takes around 4-6 weeks to approve a valuation

• Once approved, that valuation is valid for 90 days

• If you issue new shares (for example, in a funding round), your EMI valuation may be invalidated.

Here’s what HMRC say: 

Valuations for EMIs are valid for 90 days from the date of the agreement subject to the proviso that there are no changes in the Company’s circumstances that might affect the value of its shares prior to the options being issued. If the options have not been granted within this time frame applicants will be required to submit a fresh application with a newly completed form VAL 231.

The changes that would require a new valuation include an investment round, issuing new shares, or any change in your company’s ownership structure - HMRC will take this as evidence that the originally agreed valuation may no longer be reliable.

Deciding the right timing

Whilst it’s advisable to set up an EMI prior to raising investment, to ensure the best deal for both recipients, and you as an employer, you should consider what works best for you across three key areas: 

• Hiring now (or soon): Apply before your funding round to lock in the lowest possible valuation.
• Hiring later (or after your funding round): Hold off - don’t waste time and money on an EMI valuation that you won’t use in time.

• Raise is months away: Great - now is the time to set up your EMI scheme and apply for your valuation.

• Raise is imminent: Focus on closing your round and set up your EMI once the dust settles.

• Current team members can benefit from the EMI as soon as it is set up - if you have an existing team, you can issue options immediately.

• For future hires, you may need to wait until post-investment before setting your scheme up, particularly if you’re relying on the capital to bring them on.

Setting up an option pool

If you’re raising, investors will typically expect you to create an option pool pre-investment. This is simply a portion of your equity set aside for future grants.

Investors want the pool created before you raise, so they aren’t faced with unexpected dilution after they fund your business. It helps maintain clarity and trust with investors, and is a clear signal that you’ve thought about protecting their interests.

You’ll size it based on who you want to bring on and how much equity you’re prepared to give away.

Think of it like this: 

• Your option pool is the capacity
• Your EMI scheme is the framework for granting options within the set capacity

For more information on why you should set up an option pool pre-investment, check out our blog.

Bringing new employees into an existing EMI scheme

Once your EMI scheme is set up, you can keep granting options within that scheme to new hires as you grow.

The catch lies within the valuation, not the scheme itself: 
Your HMRC valuation only lasts 90 days, or until new shares are issued.
If it’s still valid, you can use the same valuation for new option grants.
If it’s expired, or you’ve just raised, you’ll need a fresh EMI valuation.

If you are a company that is experiencing accelerated growth, it’s likely that you’ll apply for an EMI valuation at least once or twice a year. You can promise options in their contracts when they join, which can be converted into formal option grants on the valuation refresh.

A founder’s checklist for EMI timing

Here’s a quick way to think about it:

• Have employees now? Apply before your next funding round if possible.

• About to hire in the next 3 months? Get your EMI valuation lined up.

• Raising imminently? Focus on closing the round first, then apply.

• Not hiring soon and don’t have current employees? Hold off and save yourself the admin.

• Bringing in new hires regularly? Refresh your EMI valuation once or twice a year.

Plan ahead with Vestd

EMI schemes are about rewarding and retaining your team. Timing them well means maximising their potential upside for both you and your team.

With Vestd, you can:

• Apply for your EMI valuation directly on platform platform

• Let us handle all correspondence with HMRC

• Create and manage your option pool

• Grant options to new employees digitally, whenever you’re ready

So whether you’re about to hire, about to raise, or both, the key is to plan ahead and fit your EMI scheme into your growth journey in a way that makes sense for your business.

Talk to us about how you can build an EMI scheme that works for you.