Call for share options action as European start-ups set to hire 100,000 workers

28 Nov 2018

Stripe CEO Patrick Collison, one of the signatories of the letter. Image: Stripe

30 European start-up CEOs call for action on share option policies to avoid the risk of a major brain drain.

The CEOs of 30 European start-ups, ranging from Stripe to Revolut and Supercell, are writing to Europe’s policymakers asking them to make it easier to give employees options to acquire a slice of the companies they work for.

They say that over the next 12 months, Europe’s start-ups will need to hire more than 100,000 employees and, without delay, legislators are urged to fix the “patchy, inconsistent and often punitive rules” that govern employee ownership.

‘On average, employees of US start-ups own twice as much of the companies they work for compared to their European counterparts’

The CEOs have written a letter that will be sent to policymakers on 7 January. As well as Irish entrepreneur Patrick Collison from Stripe, the signatories include:

  • Johannes Reck (GetYourGuide)
  • Alice Zagury (The Family)
  • Christian Reber (Pitch)
  • Johannes Schildt (KRY/LIVI)
  • Peter Mühlmann (Trustpilot)
  • Ilkka Paanenen (Supercell)
  • Taavet Hinrikus (TransferWise)
  • Lucas Carne (Privalia)
  • Jean-Charles Samuelian (Alan)
  • Alex Saint (Secret Escapes)
  • Dr Tamaz Georgadze (Raisin)
  • Nikolay Storonsky (Revolut)
  • Samir Desai (Funding Circle)
  • Markus Villig (Taxify)
  • Jean-Baptise Rudelle (Criteo)
  • Nicolas Brusson (BlaBlaCar)
  • Jacob de Geer (iZettle)
  • David Okuniev (Typeform)
  • José Neves (Farfetch)
  • Felix Van de Maele (Collibra)
  • Joris Van Der Gucht (Silverfin)
  • Daniel Dines (UiPath)
  • Rohan Silva (Second Home)
  • Niklas Östberg (Delivery Hero)
  • Dominik Richter (Hello Fresh)
  • Dr Raoul Scherwitzl (NaturalCycles)
  • Alex Depledge (RESI)
  • Juan de Antonio (Cabify)
  • Ida Tin (Clue)

Poor policy means poor returns for local economies

As we know in Ireland, entrepreneurs leading start-ups are crippled when it comes to competing with multinationals in terms of salaries and other perks to hold on to staff.

‘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’

In Budget after Budget, successive Ministers for Finance have done very little to resolve problems such as share options and capital gains tax, and initiatives such as KEEP have proven to be unattractive, with little take-up.

The 30 CEOs have warned policymakers that the availability of talent, not the lack of capital, is the biggest bottleneck to the growth of European start-ups.

“Start-ups are unable to compete for this talent with salary and benefits alone,” they wrote. “But they can offer employees a meaningful ownership stake in the form of stock options, rewarding the risk employees take with a young, unproven business with a promise of a pay-out should the start-up succeed.

“While employee ownership is routinely used in Silicon Valley to attract and retain talent needed by start-ups with limited cash but near-limitless potential, in Europe it is offered inconsistently and at far lower levels. On average, employees of US start-ups own twice as much of the companies they work for compared to their European counterparts.”

Contrary to what outmoded politicians and civil servants think (many of whom regard risk as crossing the road in Ranelagh on a Saturday morning to buy the newspaper), share options are not just a perk on top of a salary.

They reward employees for taking the risk of joining a budding business and give them a real stake in a company’s future success. When starting out, these companies just cannot afford to pay the higher wages of established businesses.

But when companies are acquired, the share of wealth can then be used by employees to start new companies and they become the lever for wider economic growth.

Start-ups and multinationals are intertwined

Another key aspect of this is the trend for acqui-hiring where companies are bought for their intellectual property and talent and are essential to the next phase of job creation by multinationals.

As pointed out earlier this week in our story, ‘The real imbalance is in how we treat start-ups and small businesses’, examples of acqui-hiring in Ireland abound, including: Facebook-owned Oculus’s acquisition of Cork start-up InfiniLED in 2016; the acquisition of Waterford’s FeedHenry by Red Hat for €63.5m in 2014; and, in recent weeks, Genesys, a company that acquired Irishman Barry O’Sullivan’s Altocloud start-up for an undisclosed sum, revealed plans to create 200 additional jobs in Galway.

The 30 start-up CEOs warn: “Policies that currently govern employee ownership across Europe are often archaic and highly ineffective. Some are so punishing that they put our start-ups at a major disadvantage to their peers in Silicon Valley and elsewhere, with whom we’re competing for the best designers, developers, product managers and more.

“If we fail to take action, we could see a brain drain of Europe’s best and brightest, leading to fewer jobs created and slower growth. That’s why we need to create start-up-friendly employee share ownership schemes, to help Europe’s tech sector – its greatest engine of growth, innovation and employment – to succeed and thrive in the global labour market.”

The fears for a brain drain are well founded when you consider that Patrick and John Collison had to go to San Francisco to find the right conditions to start Stripe – a company now valued at $20bn – rather than start up in their native Ireland. While they have since established an international engineering operation in Dublin that is generating hundreds new jobs, thoughts of what could have been a homegrown success story on par with Google or Facebook are tantalising.

“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.”

Update, 9.59am, 28 November 2018: This article was updated to include Ida Tin in the original list of 30 signatories. More signatories have since been added, and they can be found here.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years