Founders and policymakers recognise the critical role of talent and continue to embrace stock options as a way to strengthen European startups and drive innovation
Step-change in the use of stock options schemes by European startups over the past 5 years, closing the gap with Silicon Valley levels
Policy improvements made to schemes in Ireland, the Netherlands and Spain at the beginning of 2023, and further reforms planned this year in the UK, Austria and Belgium
A new analysis by the Not Optional campaign revealed today that over €5 billion has moved from the hands of founders and investors to European startup employees over the past 5 years.
As startups continue to operate in a challenging macro-environment, this increase in employee ownership reflects growing recognition of the importance of rewarding talent by both entrepreneurs and investors. The improvement also comes as Ireland, the Netherlands and Spain introduced reforms to national stock option schemes from 1 January 2023, with further improvements planned in the UK, Austria and Belgium later this year.
Not Optional was founded by Index Ventures and 700+ CEOs, with the aim of improving the competitiveness of European startups by helping them attract the best global talent. When it launched in 2017, European employee ownership at late-stage startups averaged 12%, compared to 20% in the United States — where employee ownership has long been recognised as a vital tool to attract the best talent. The new analysis finds that this has now risen to 16% in Europe. With 124 new VC-backed unicorns in Europe in 2021 and 2022, this represents an additional €5 billion of value that is now in the hands of employees. As more startups mature, this number will multiply many times over, drawing in more talent to Europe’s innovation ecosystem.
This step-change is in significant part thanks to policymaker engagement and reform, helping to overcome outdated rules and regulations that limit employee ownership.
Following the changes in Ireland, the Netherlands and Spain, the Not Optional country ranking, which takes a range of factors into account to score the effectiveness of 24 separate national stock option schemes, has been updated, with these countries all improving their position.
Momentum is also gathering pace at a pan-European level. Following the publication of the New European Innovation Agenda in July last year, the 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. This will mark the first time a Commission expert group is set up to solely address the issue of stock options reform at the European level, signalling that EU policymakers are finally appreciating the need for a more harmonised approach.
Dominic Jacquesson, VP of Insight and Talent at Index Ventures, who has advised founders on structuring compensation for over a decade said: “This increase in European employee ownership will further strengthen the startup ecosystem and jump-start a flywheel of innovation and investment. Not only do stock options help companies compete on a global stage for talent, 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.”
Job van der Voort, co-founder and CEO of Remote, also commented: “We’ve seen first hand 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. We greatly welcome these reforms and look forward to seeing further improvements across Europe over the coming year.”
Hannah Seal, Partner at Index Ventures, added: “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.
Reforms introduced from 1 January 2023:
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 €3 million to €6 million) 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 employees can receive annually increased from €12k to €50k, with taxation only incurred at liquidity.
Netherlands: Stock options are no longer taxed at exercise but instead at the point of tradeability.
Reforms being discussed or due to come in this year:
UK: Historically a leader of the pack in Europe, 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 in Prime Minister Alexander de Croo’s government included a commitment to reform on 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.
Appetite for change is on the rise across Europe. By bringing together European founders, investors and policymakers, the Not Optional campaign aims to ensure that all ongoing reforms remain ambitious after passing through national legislative procedures, thus leading to concrete improvement for the startup community and a real increase in employee ownership. Since launching, Not Optional has engaged with policymakers in Brussels and 15 European nation states.