Take a fresh look at your lifestyle.

Europe's biggest startups are allocating more equity to staff to catch up to Silicon Valley's wealth creation

Europe’s startups are starting to offer stock options like their US peers.

  • European startups are catching up with US counterparts when it comes to handing equity to staff.
  • Owning stock in a company that goes public can turn rank-and-file staffers into multimillionaires.
  • Index Ventures investor Martin Mignot said offering staff ownership is key in attracting top talent.

For decades, Silicon Valley’s tech startups have rewarded their long-serving employees with stock grants and stock options.

Stock options are when a company offers employees a certain number of its shares for a set price, which can be bought or sold on or before a certain date.

Early staffers at Uber, Snap, and Slack were in line for big payouts when their companies went public. Expensify, when it went public at the beginning of November, turned 40% of its employees into paper millionaires. 

That stock-based reward culture is rarer among European startups, but that is slowly starting to change.

Equity reserved for staffers in the bloc is now approaching US levels for the first time, research from the venture-capital firm Index Ventures indicated.

The study found that European startups at each stage of growth have been allocating a greater share of equity to employees over the past five years. 

The shift is clearer at later stages. Startups now allocate between 15% and 17% of equity to employees at Series D, edging themselves closer to the 20% to 23% observed in the US.

Index Venture’s 2016 report showed that Europe’s options previously maxed out at 10%. This was offered upfront and wouldn’t increase with rounds. But in the US, startups typically increased stock options from 10% at seed to 15% at Series A, growing with each round to 20% or even 25% by Series D.

Index Ventures, which backed the likes of Deliveroo, Skype, and Facebook in their early days and whose current portfolio includes Revolut, Discord, and Slack, has long advocated for increased stock options across the bloc.

“In Europe, you didn’t used to have a lot of very successful tech companies and early employees that had made a lot of money, so people didn’t really value options,” said Martin Mignot, an investor at Index. “That’s now changed.”

Kristo Käärmann CEO Wise
Kristo Käärmann, the CEO and cofounder of the fintech Wise, which enabled employees and early investors to cash out prior to a direct listing.

Soaring valuations, successful IPOs, and exits have helped drive the shift. The flow of capital has made the market more competitive, so employee ownership is now a “significant drawcard” in attracting top talent away from corporate salaries, while tech workers have become savvier after watching their peers at Deliveroo and Wise get rich, Mignot said. 

Despite the upward trajectory, European option pools are still an average of 3 percentage points smaller than those in the US. Those in technical roles and experienced leaders across all functions have benefited most.

The data reflects Europe’s maturing ecosystem as a record number of unicorns has been minted this year. As of September 30, there were 95 unicorns in Europe and Israel, with 40 hitting a $1 billion valuation this year.

Index Ventures has previously pointed to variable tax policies through Europe as one reason the region has lagged behind the US.

It has made some progress in its lobbying efforts, Mignot said, but policymakers still have a role to play in supporting and incentivizing employee ownership.

The European Commission has put forward a best-practice framework, he said. “It hasn’t had a massive impact at the local level, so that’s definitely the next phase,” he added.

Mignot also expects employees who reap the rewards of options to funnel cash back into the ecosystem, becoming angel investors or launching their own fast-growth startups.

“You’re going to have the emergence of some unprecedentedly large companies from Europe, which are then going to give birth to 10 to 100 times more young startups with even more ambitions and even faster growth curve,” Mignot said.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More