European Startups Call for Stock Option Fix to Compete With U.S.

Some of Europe’s most successful technology startups are urging governments to change laws to make employee stock options more attractive, in order to better compete with Silicon Valley, according to Bloomberg.

In an open letter, signed by about 30 chief executives of companies including iZettle, Funding Circle, Supercell, TransferWise, Blablacar and U.S.-based Stripe, the tech companies said a patchwork of different rules in various European countries makes it complicated and costly for employers to dole out stock options. “Without delay, we call on legislators to fix the patchy, inconsistent and often punitive rules that govern employee ownership,“ according to the letter, whose authors are inviting other executives to sign on before it’s sent to policy makers in early January.

In some countries, like Belgium, employees are taxed when they are granted stock options, rather than when they acquire the shares, meaning they could end up losing money if the startup goes bust. In other countries like Germany, minority shareholders are required to have voting rights on corporate decisions, which many directors view as a headache. Rules in some countries are “so punishing that they put our startups at a major disadvantage to their peers in Silicon Valley and elsewhere,“ the CEOs wrote.

Employees at U.S. startups on average own twice as much of the companies they work for compared with their European counterparts, according to Index Ventures which has conducted research in the area and is loosely coordinating the European Union campaign. The call by the tech startups comes ahead of elections next year when the European Commission will also change staff. Policy makers should now put talent at the top of their agenda, the signatories wrote.

An investor in many young businesses, Index Ventures said it’s pushing for the changes despite the fact it could dilute existing investors in a company. “If you think about it in a truly mathematical way, it looks like you’d be better off with less options, but that’s clearly not our approach, and it’s not what we’ve learned over the past 25 years of doing this job,“ said Martin Mignot, a partner at Index Ventures. “To be successful as a company, you need two things: One is capital, and one is talent.“