Pricing the round, or deferring it

The choice is when the price is set, not whether

Two routes take money into a Norwegian AS at this stage. A priced share issue settles the valuation (verdsettelse) now, issues shares now, and puts the new owners on the share register now. A deferred-pricing instrument takes the money now and turns it into shares later, at a price derived from the round that follows.

The discount and the valuation cap you agree today are a price. The discount says the early money buys shares more cheaply than the next investor’s. The cap says that however the next round is priced, the early money converts as if the company were worth no more than an agreed ceiling.

Both are negotiated before the money moves. A priced round settles the number in a conversation you are part of; a cap settles it in a conversation you may not be part of, against a valuation nobody has yet argued about.

You gain speed, fewer corporate formalities now, and a way through a genuine disagreement about the number. The investor gains a price fixed against a later, better-informed valuation, with downside protection built in. Neither side gains certainty.

The priced share issue (emisjon)

A priced round is a corporate act as well as a contract. The shares are created by the company under aksjeloven chapter 10, in a fixed sequence, and that sequence sets the minimum timetable.

1. The board proposes the increase, with the supporting documents the statute requires.
2. The general meeting (generalforsamling) resolves it. The resolution needs two thirds of both the votes cast and the share capital represented at the meeting, because the capital figure in the articles of association changes (aksjeloven § 5-18). It must state the amount of the increase, the nominal value and the subscription price (emisjonskurs, tegningskurs in the statute), who may subscribe, the subscription deadline and the payment deadline (§ 10-1).
3. Existing shareholders have a pre-emptive right to subscribe pro rata (§ 10-4). Every external round sets that right aside, which takes the same two-thirds majority (§ 10-5). Read your own cap table before the meeting: a shareholder bloc holding more than a third of the capital represented can block the round.
4. Subscribers subscribe, in the minutes or in a separate subscription document, and pay.
5. The increase is notified to Foretaksregisteret within three months of the subscription deadline, with confirmation that payment has been received. Miss the deadline and the resolution lapses and the subscribers are released (§ 10-9). Payment of a cash contribution may be confirmed by an auditor, a financial institution, a lawyer or an authorised accountant; a non-cash contribution needs an auditor and a board report with a valuation dated no earlier than four weeks before the meeting.

The filing goes through the coordinated register notification (Samordnet registermelding) in Altinn and costs nothing, since a capital increase is not one of the changes Foretaksregisteret charges for.

The fee-bearing changes are a closed list (capital reduction, change of business name including on conversion, merger, demerger and relocation plans, partner and liability-share changes, and prospectuses), currently costing roughly NOK 1,300 digitally and NOK 2,500 on paper, with the exact amounts on Brønnøysundregistrene’s fee page.

What a priced round costs is the legal work on the documents. The statutory steps can be completed within days once the subscribers are known; what varies is the registry’s processing time and how long the investors take over diligence and documents.

A priced round takes more corporate steps now and ends the question. A deferred instrument takes fewer steps now and keeps the question open, along with the paperwork it will eventually require, since conversion is itself executed as a registered capital increase.

Deferring the price: the SLIP and the convertible loan

US-style SAFEs are not used as they stand in Norway. The Norwegian instrument built for the same job is the SLIP (Startup’s Lead Investment Paper), created by Startuplab with the law firm SANDS and launched in April 2019 to make SAFE-like deferred pricing work with Norwegian company law.

A SLIP takes the money in now against an irrevocable right to subscribe shares at the next qualifying equity round, with a discount and, usually, a valuation cap. It carries no interest, no maturity and no repayment right, and behaves as equity.

It has become the standard instrument in Norwegian startup circles; Startuplab withdrew its own convertible loan agreement template in May 2023 on the ground that it was no longer a relevant instrument.

Innovasjon Norge accepts SLIP capital alongside its own financing, on conditions that include the SLIP money being subordinated to all debt and not repayable, with its financing capped at around NOK 5 million to companies under five years old; Innovasjon Norge’s page has the current terms.

The convertible loan (konvertibelt lån) is still available and still used, particularly for bridges where a lender wants a debt claim. Aksjeloven provides for it directly (§§ 11-1 and following).

• A company may take up loans carrying a right to demand shares issued.
• The general meeting resolves it with the same two-thirds majority as an articles amendment, and the resolution must state the loan frame and the conversion terms.
• Existing shareholders have a pre-emptive right to subscribe the loan itself, which can be set aside by the same majority.
• The meeting may authorise the board to resolve such loans within a frame.

Once the amount set by the general meeting has been subscribed, the loan resolution must be notified to Foretaksregisteret without delay (§ 11-6). Put that filing on the same checklist as the loan agreement itself.

The conversion is later executed as a registered capital increase, notified as soon as the deadline for demanding shares has expired, or, where that deadline runs longer than twelve months, within one month after the end of each financial year (§ 11-7).

Both instruments turn on the same levers. Each one moves the ownership you are left with at conversion, so negotiate them together.

• Principal. How much comes in before the price is set. The larger it is relative to the next round, the more of the next round’s arithmetic it dictates.
• Discount. The percentage below the next round’s price at which the early money converts. Norwegian sources treat 20 per cent as the customary figure.
• Valuation cap. A ceiling on the valuation used at conversion. It is the single most important economic term in the document, and the only one that can cost you double digits of ownership. No Norwegian source publishes a range for where caps are set, so model your own: run the cap against the valuation you expect at the next round and read off the ownership it hands the investor.
• Interest. Present in a convertible loan, absent by construction in a SLIP. No standard Norwegian rate is published; loans are typically referenced to NIBOR plus a margin. Interest normally accrues and converts with the principal.
• Maturity and its fallback. What happens if no qualifying round arrives. Founders get hurt here.
• Trigger events. The next qualifying round, defined by a minimum size, plus a sale of the company, bankruptcy, and maturity.

Interest raises tax points that belong in the conversation before the rate is agreed. Interest on a genuine loan is a deductible cost for the company (skatteloven § 6-40). That section has no special rule for loans from shareholders; the limits come from whether the instrument is debt at all, from the arm’s-length rule in § 13-1, and from the interest-limitation rule for related lenders in § 6-41, which bites only where a lender owns or controls at least half the company and net interest costs pass a threshold set in that section.

Interest paid to an investor who lends as a private individual is taxed as ordinary income at 22 per cent, with an additional tax on the part above the rate Skatteetaten publishes for the purpose (skjermingsrente).

Skatteetaten sets that rate for two-month periods and publishes it on the page above, so check it there against the period your loan runs in. Interest above it falls under the rule on interest income from loans to companies, which brings it close to dividend-level taxation.

An angel lending through a holding company is outside that rule. A high interest rate therefore gives a private lender less than it costs you, so a rate set to compensate them is money leaving the company for little benefit.

Neither point settles what happens to interest that has accrued and is then settled in shares at conversion. No Skatteetaten guidance has been located on it, so put the question to an adviser before the rate is agreed.

The conversion arithmetic, worked

Take Fjellrev AS, whose founders hold 1,000,000 shares. The company raises NOK 6 million on two convertible instruments of NOK 3 million each, at a 20 per cent discount with a NOK 40 million pre-money cap. Interest is left out for clarity; in a convertible loan it would accrue and convert too, increasing the amounts below.

A year later a new investor puts NOK 15 million into a qualifying round at NOK 60 million pre-money, which makes the round price NOK 60,000,000 ÷ 1,000,000 = NOK 60 a share.

The discount gives 60 × 0.8 = NOK 48. The cap gives 40,000,000 ÷ 1,000,000 = NOK 40. The holders convert at whichever is lower, so at NOK 40.

• Holders of the instruments receive 6,000,000 ÷ 40 = 150,000 shares.
• The new investor receives 15,000,000 ÷ 60 = 250,000 shares.
• After the round: founders 1,000,000 shares (71.4 per cent), early holders 150,000 (10.7 per cent), new investor 250,000 (17.9 per cent), total 1,400,000.

At the round price the company is worth 1,400,000 × 60 = NOK 84 million, which is the NOK 60 million pre-money plus NOK 15 million of new cash plus NOK 9 million that came from the founders.

The early holders received shares worth NOK 9 million for NOK 6 million lent. The NOK 3 million difference is what the cap and discount cost the existing shareholders.

The same instruments behave very differently depending on how the next round is priced. Run the three cases against your own numbers before you agree a cap.

The better your next round, the more the cap costs you, because the cap converts your success into the early investor’s ownership. A discount alone is bounded; a cap is not.

Instruments stack. Each new one at the same cap takes another slice at the same low price, and the total is rarely modelled until the conversion spreadsheet is built at closing. A cap set at or near the valuation you expect to raise at is the price of the round, agreed before anyone did diligence.

When deferring is the better trade

Deferral is the better trade in a few situations. Each has a test you can apply before you talk to an investor.

• A small bridge. An amount that will not move the cap table much, between a signed plan and a round that is already in motion.
• A priced round that is genuinely imminent. A lead investor is committed, the terms are close, and the money is needed before the corporate steps can be completed.
• A real pricing impossibility. The company has just changed direction, or a decisive contract lands in six weeks. Where the price cannot be argued honestly, deferring it to a point where it can is better than guessing.

It is avoidance when you and the investor disagree about the number and neither wants the argument. The argument reappears at conversion, with a cap standing in for the valuation you would not negotiate, and by then you have spent the money.

Before choosing, put two questions to the draft document. A bad answer to either is a reason to price the round instead.

1. What does it do if no qualifying round happens in eighteen months?
2. Once the instruments are added to your cap-table model at the cap price, is the ownership you are left with one you can still raise a next round on?

What the trade looks like depends on where you are. So does the term to fight hardest for.

• First outside money, no lead. The SLIP is the standard instrument. Where the amount is small, ask for no cap; otherwise set the cap above the valuation you realistically expect at the next round, and keep the total principal small enough that it does not dictate that round’s arithmetic.
• A bridge from existing shareholders. The general meeting must resolve the loan either way. If they all take part pro rata, their pre-emptive right to subscribe it is satisfied; if only some lend, the meeting must also set the right aside by the same two-thirds majority. Book the meeting before the money is needed.
• Innovasjon Norge money alongside. Its conditions (subordinated to all debt, not repayable) decide the instrument. A SLIP with no repayment right is built to meet them; a convertible loan with a repayment fallback is the term to remove first.
• A priced round imminent, lead committed. Match the bridge’s cap and discount to the terms already on the table, so the bridge and the round convert on the same numbers and nobody reopens the price at closing.
• A lender who insists on debt. Use the convertible loan and spend the negotiation on the maturity fallback: automatic conversion at the cap, never repayment on demand. Ask whether the lender invests privately or through a holding company, because the extra tax on interest above that published rate reaches only the private lender, and a rate set to compensate for it costs you more than it gives them.

Terms you can live with at conversion

Take these positions into the negotiation. Each item you fail to refuse becomes ownership or a creditor claim you cannot later undo, so hold the line on them and bring counsel in where an investor will not move.

The most dangerous single term is the maturity fallback. The Norwegian default for a convertible loan is that if nothing has triggered conversion by maturity, the loan is repaid with interest.

A pre-revenue company cannot repay it, which leaves the lender a creditor at the worst possible moment, able to renegotiate from strength or apply insolvency pressure. Fix it by making conversion at the cap automatic at maturity, or by using a SLIP, which has no maturity and no repayment right to begin with.

Whichever instrument you sign, model it into the cap table at the cap price before signing; closing is too late.