Not Optional, an initiative founded by Index Ventures and 700+ CEOs, in a new analysis revealed that over €5B has moved from founders and investors to European startup employees over the past five years.
This increase in employee ownership amid a challenging macro-environment shows the growing recognition of the importance of rewarding talent by entrepreneurs and investors.
The improvement also comes as the Netherlands, Ireland, and Spain introduced reforms to national stock option schemes from January 1, 2023.
Reforms introduced from January 1, 2023 are:
- Netherlands: Stock options are no longer taxed at exercise but instead at the point of tradeability.
- Ireland: The national stock option régime or Key Employee Engagement Programme (KEEP) was extended to the end of 2025, with part-time and flexible workers brought into scope. Improvements were also made to the lifetime company limit (increased from €3M to €6M) and the buy-back of shares by the company from relevant employees.
- Spain: As part of the Startup Law which was approved in 2022, the total amount of tax-exempt stock options that employees can receive annually has been increased from €12k to €50k, with taxation only incurred at liquidity.
Reforms being discussed or due to come in this year:
- UK: The UK is bringing in reforms, effective from April, to the Company Share Option Plan scheme to make it accessible to scaleups, alongside the existing and successful Enterprise Management Incentive scheme focused on smaller startups.
- Austria: Negotiations on the “FlexKap” new company form package, and an associated proposal to reform stock options taxation in Austria, are now intensifying. The proposal is expected to introduce an informal, non-voting stock options framework where taxation is only incurred at liquidity.
- Belgium: The Ministry of Finance included a commitment to reform stock options as part of Belgium’s global taxation review. The stock options reform proposal could be put to the Belgian Parliament in Q1 of this year.
Following the changes in Ireland, the Netherlands, and Spain, the Not Optional country ranking, which takes various factors into account to score the effectiveness of 24 separate national stock option schemes, has been updated, with these countries improving their position.
Following the publication of the New European Innovation Agenda in July last year, the European Commission is now expected to establish the European Stock Options Working Group led by Commissioner Mariya Gabriel and the Directorate-General for Research and Innovation.
A Commission expert group will address the issue of stock options reform at the European level for the first time, signalling that EU policymakers are finally acknowledging the need for more harmonisation.
Why the ‘Not Optional’ initiative?
The ‘Not Optional‘ initiative was created in 2017 to improve the competitiveness of European startups by helping them attract the best global talent.
During its creation, European employee ownership at late-stage startups averaged 12 per cent, compared to 20 per cent in the United States.
The new analysis discovers that this has risen to 16 per cent in Europe.
With 124 new VC-backed unicorns in Europe in 2021 and 2022, this represents an additional €5B value that is now in the hands of employees, says the analysis.
This number will multiply many times over as more startups mature.
Dominic Jacquesson, VP of Insight and Talent at Index Ventures, says, “This increase in European employee ownership will further strengthen the startup ecosystem and jump-start a flywheel of innovation and investment.”
He adds, “Not only do stock options help companies compete on a global stage for talent, but those that have successfully exited also create‘graduates’ who frequently re-invest their wealth, seeding the ecosystem with fresh founders and angel investors.”
“The benefits of employee ownership have long been known in Silicon Valley; it is hugely rewarding to see Europe catching up,” he says.
Job van der Voort, co-founder and CEO of Remote, says, “We’ve seen firsthand the positive impact that employee ownership can have in attracting more talent to the startup sector, both in terms of the companies we support with our technology and internally as we grow ourselves.”
Hannah Seal, Partner at Index Ventures, says, “Despite the current market turbulence, there are real reasons to be excited about the future of European tech, with talent being the main driver of this journey.”
“The long-term trend of technology helping to solve pressing issues of our time continues, and this increase in employee ownership will help to spur the next wave of entrepreneurs,” adds Seal.