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Key Findings

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Investors

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Purpose

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Policy

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Appendix

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Incentivising and Retaining Talent

The difference in the level of compensation for founders is material between Europe and the United States at the early venture stages (Seed to Series B). Founders in the US have higher base salaries and higher incentive pay. At Series C, the gap in total compensation closes, driven by higher incentive pay for European founders, not higher base salary levels.

Founder base salary ($) by funding round in the 50th percentile by region

Legend

  • Base Salary (EU)
  • Base Salary (US)
  • Incentive Pay (EU)
  • Incentive Pay (US)
Note:
Note that at Seed stage some Founders may not take a base salary and take incentive pay instead. Incentive pay is cash bonus or incentive, which is not related to equity or equity value. Converted EUR to USD with an FX rate of 1.1151 from 30 October 2019.

The average level of founder equity by funding round is closely aligned between the United States and Europe at the early stages of funding. Post Series C, European founders maintain more ownership than their American counterparts. The overall trend in terms of founder equity dilution as companies progress through multiple funding rounds is important to observe. After their Seed round founders hold, on average, around 32% equity in their company, but this declines to less than 15% post-Series C.

Founder equity by funding round in the 50th percentile by region

Legend

  • Europe
  • United States

European tech companies have historically lagged behind those from the US in their use of stock options as an effective tool to attract, incentivise and retain talent. However, looking at Shareworks’ latest employee ownership survey, there are signs that the latest generation of companies from Europe are now properly rewarding their most talented executives and employees. While there is likely sample bias because most founders who participate in the survey are likely to a) understand the issue more and b) be better at remunerating their employees, it is a positive sign. There is still work to do, but thanks to important efforts to build awareness around the issue, such as NotOptional, more founders are starting to take this issue seriously, and the rest will hopefully follow suit. European governments need to pay attention and ensure that the implementation of progressive policies around use of stock options do not lag behind this evolved attitude among European founders.

Employee ownership by funding round in the 50th percentile by region

Legend

  • Executives (Europe)
  • Executives (US)
  • Staff + other (Europe)
  • Staff + other (US)
  • Unissued (Europe)
  • Unissued (US)
Note:
This details equity held by employees and unissued options excluding founders shares. Equity not related to salary nor incentives.

To be clear, there are more and less favourable environments for the use of stock options in different European countries. It's interesting in that context to look at differences by geography in how founders and tech startup employees perceive the effective use of stock options in their companies. Founders from the UK, which has one of the most favourable environments for the use of stock options, are more likely to believe that stock options are used effectively in their company. This is mirrored by responses from employees at UK-based tech startups and scale-ups.

Founders' and employees' views on stock options being used effectively to incentivise employees in my company

Source:

Legend

  • Agree
  • Disagree
  • Neither agree nor disagree
Note:
Founder and tech start-up and scale-up employee respondents from companies with more than 11 employees only. Numbers may not add to 100 due to rounding.

It's also interesting to observe how founders of companies that have raised external capital compare in their responses with founders of bootstrapped companies. We found that founders who have taken external funding are more likely than founders of bootstrapped companies to agree that they are using stock options effectively within their companies to incentivise employees.

Founder's view on stock options being used effectively to incentivise employees in their company

Source:

Legend

  • Agree
  • Disagree
  • Neither agree nor disagree
Note:
Founder respondents from companies with more than 11 employees only. Numbers may not add to 100 due to rounding.

#Not Optional — Europe must attract more talent to startups.

Policy wheels are turning slowly, but they are turning.

Last year at Slush, 30 CEOs and founders of some of the most well-known European companies including BlaBlaCar, Klarna, Revolut, Supercell and TransferWise signed a letter calling on legislators 'to fix the patchy, inconsistent and often punitive rules that govern employee ownership — the practice of giving staff options to acquire a slice of the company they're working for.'

They argued that stock options is one of the main levers startups have to recruit the talent they need. They wrote: 'If we don’t eliminate the talent bottleneck, we risk squandering the incredible momentum that European tech has built up in recent years. The next Google, Amazon or Netflix could well come from Europe, but for that to happen, reforming the rules of employee ownership is definitely not optional.'

Within weeks, 500 more CEOs and founders added their signature to the letter, which kicked off #NotOptional, a campaign to bring about change in how stock options are governed across Europe.

A year on, the European Commission has actively engaged with the campaign and is looking for ways to tackle the issue in the upcoming 5-year term. Startup associations across Europe, from Deutsche Startups to France Digitale and Scale Ireland have held meetings at the most senior levels and secured commitments to make rewarding startup talent a priority. At the World Economic Forum in Davos, ineffective employee ownership policies were singled out as a major bottleneck to the growth of Digital Europe.

A change is afoot in Europe. Finland is currently in the process of drafting its new policy, France has made changes to its scheme for startups and we expect to see more, Ireland just broadened the scope of its employee ownership scheme and has a full-scale review planned for next year, and Germany, one of the countries with the worst policy in Europe, is finally responding to entrepreneurs who've been lobbying for change for years.

Based on our experience working with entrepreneurs around the world, we strongly believe that fixing stock option policies will have material impact on the ability of startups to grow and create tech giants on par with those emerging from the US and China.

Everyone who joined us in signing #NotOptional can be proud that they've helped to put the issue on the agenda in Europe. Now we need to turn positive conversations across the continent into policy.

Martin Mignot

Index Ventures

Partner

But there is clearly still work to do to ensure that stock options are used effectively to incentivise employees at tech startups and scale-ups. The bigger the company, the more likely founders are to agree that they're using stock options effectively but, conversely, the less likely employees are to agree that this is the case.

Founders' and employees' views on stock options being used effectively to incentivise employees in their companies

Source:

Legend

  • Agree
  • Disagree
  • Neither agree nor disagree
Note:
Founder and employee at a tech start-up or scale-up respondents only. Numbers may not add to 100 due to rounding.

The role of stock options as a tool to incentivise talent is particularly relevant in the context of increased competition for talent within the European tech ecosystem. Larger companies, in particular, are experiencing increasing competition for talent from both local tech startups and global giants. If you're an employee at a company with 100+ employees, you're more likely to be aware of your stock options; founders can leverage this insight not only to attract but also to retain talent.

Source:

Legend

  • Increase
  • Decrease
  • No change

Beyond financial incentives, employees are increasingly drawn to companies with strong missions. This is particularly striking for larger companies and could be a differentiating factor for unlocking a highly sought-after talent base.

Number of employees placing greater emphasis on corporate social responsibility by company size

Source:

Legend

  • Increase
  • No change
  • Decrease
Note:
Employee at a tech startup or scale-up respondents only. Numbers may not add to 100 due to rounding.

We've been blown away by the strong talent across Europe; we've hired key roles from Uber, Apple, Deliveroo, Spotify and iZettle. We're lucky to have scaled quickly across Europe and now have three offices with local teams. The best thing we've done is create a remote-friendly culture where key and senior roles are not bound to our Swedish base. In fact our new VP of Marketing joined us a few months ago and is based out of our London office.

Elsa Bernadotte

Karma

Co-Founder & COO

Increase in CSR focus


71%
of employees of large tech companies place greater emphasis on corporate social responsibility

Source:

The State Of European Tech Survey

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