The lack of adoption of stock options slows European startups


While Europe's startup ecosystem has changed dramatically in the last decade, venture capitalists warn that entrepreneurs must do more to encourage and reward risk if they want to create the next generation of technology giants.

"One of the things that sustains [these entrepreneurs] back, and withholding Europe, from actually building companies the size of Amazonas is attracting and retaining the right talent," said Martin Mignot, partner at Index Ventures. "And one of the most important criteria to do it is the property of the employees."

To highlight the urgency of the situation, Index Ventures launched today "Rewarding Talent", a study that examines the use of stock options in Europe and the US. UU The report concludes that, on average, a startup of last stage in the USA. UU It will have distributed shares that account for approximately 20 percent of the company, but a European startup will only have distributed about 10 percent of its shares to employees.

European option stock rates tend to be driven by three factors, according to the Index Ventures report.

First, there is the issue of culture. While there is now more support for risk-taking innovation, Europe still has a way to catch up with Silicon Valley. In short, entrepreneurs must understand that granting property is key to finding enough innovative talent to scale the company.

Secondly, most entrepreneurs do not have personal experience with stock options, given the relative youth of the European technology scene. To that end, Index Ventures released a manual to give entrepreneurs a better roadmap in terms of understanding the pros and cons of stock options. Part of this boils down to understanding technical decisions, such as how to structure company actions in a way that can still reward large groups of options to experienced managers that a company will need later as it expands. .

"One of our recommendations is for entrepreneurs to think long term," said Mignot. "The best way to recruit and retain the best talent is through options, you have to be more aggressive."

This concern about risk and talent is shared by Balderton Capital, another of the most influential venture capital firms in Europe. Balderton recently launched his own manual on the subject, "The Balderton Essential Guide to Employee Equity."

"Europe has lagged behind in the tradition of really climbing, really big companies," said Bernard Liautaud, managing partner of Balderton. "We're still on a trip to get there, in the US, it has a bit of a recipe on how to scale a company."

Both firms also emphasize a third point: Byzantine finance laws in Europe make the use and distribution of stock options too difficult. Currently, tax treatments and laws for stock options are determined at the country level, and not at the level of the European Union. This means that as a company expands across the continent, it faces a dizzying maze of financial regulations.

The rules for stock options in the UK are clearly the clearest, Mignot said, and it is no accident that entrepreneurs use them more and that London has become Europe's leading startup center.

"Entrepreneurs are agile, and they produce attacks," said Mignot. "But we are making their lives unnecessarily complex for something that should be easy."

While there have been improvements in some places, Mignot said he would like to see more countries take stronger measures to align the rules across Europe. In some jurisdictions, the treatment of stock options remains punitive, he said, although he added that the rules vary widely across the continent.

In a leaderboard, France and Ireland scored high (after the United Kingdom), while Germany and Spain were found to be in most need of a reform of stock options.

"National authorities should realize that they are competing with each other in a connected world," Mignot said. "If they want to remain competitive, they should make life easier for their entrepreneurs."

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