● On the back of the Future Financing Act (“Zukunftsfinanzierungsgesetz”) cabinet decision, Index Ventures is reassessing Germany’s position in its employee stock options ranking of 24 countries.
● Should the law come into force as proposed, Germany would be receiving 23 out of 30 points (previously 10 points), leaving last place and rising to be almost on a par with the US, and ahead of many of its European peers such as the Netherlands and Denmark.
● The improvement is mainly due to the planned solution of the dry-income problem, which would make German start-ups more attractive in the international competition for the best talent.
● Katharina Wilhelm, Partner Index Ventures: “The Future Financing Act will be a catalyst for start-up growth in Germany and Europe.”
● Should the law come into force as proposed, Germany would be receiving 23 out of 30 points (previously 10 points), leaving last place and rising to be almost on a par with the US, and ahead of many of its European peers such as the Netherlands and Denmark.
● The improvement is mainly due to the planned solution of the dry-income problem, which would make German start-ups more attractive in the international competition for the best talent.
● Katharina Wilhelm, Partner Index Ventures: “The Future Financing Act will be a catalyst for start-up growth in Germany and Europe.”
Following the publication of the draft bill for the Future Financing Act (FFA), Index Ventures, a global venture capital firm, is reassessing Germany’s position within its Rewarding-Talent-ranking of national stock option schemes from 24 countries. If the proposed law is passed by all bodies without substantive changes, Germany will more than double its achieved score, leaving last place behind and catching up with the US.
The Future Financing Act could clearly be an important stimulus for the German start-up ecosystem and the competitiveness of Germany as a business hub. German start-ups would be able to more easily involve their employees in the financial success of the company and thus attract and retain the talent they need for steady national, European and global expansion. As part of the Europe-wide “Not Optional” campaign, supported by 500 CEOs and founders including 140 from Germany, Index Ventures has been calling for the revision of Employee Share Ownership Plan (ESOP) regulations in several countries.
Index Ventures’ ranking is based on six factors: plan scope, strike price, minority shareholders and bureaucracy, employee tax (timing), employee tax (rate) and employer taxation. In each category, the different regulations were combined and scored with a maximum of 5 points. If the FFA passes as it has been proposed, Germany would score 23 (previously 10 p.) out of a maximum of 30 points, putting it on a par with Sweden (23 p.) and almost the USA (24 p.) and ahead of the Netherlands, Australia, Denmark and more.
Katharina Wilhelm, Partner at Index Ventures said: “We welcome the planned reforms in the Future Financing Act. As the largest European economy with a strong start-up ecosystem, it is about time that Germany set up employee share ownership programmes that are competitive in comparison to other international markets to attract and incentivize talents. The Future Financing Act will be a catalyst for start-up growth in Germany and Europe.”
Christian Miele, Chairman of the Board of the German Start-up Association adds: “The Future Financing Act is urgently needed to strengthen German start-ups in the international competition for top talent. Especially in light of the current tense economic situation, these structural reforms are more important than ever. Christian Lindner's proposals could massively improve German regulations for employee participation and give start-ups a big boost. Now the details have to be right. This means: The proposed regulations for employee participation must be aligned with the common allocation of shares at start-ups (so-called restricted shares) so that the law is practical.”
Hanno Renner, co-founder and CEO of Personio said: “If we want to produce international tech champions 'Made in Europe', Employee Stock Ownership Plans (ESOPs) are indispensable. ESOPs enable employees to participate in the company's success - a model that corresponds to the ideal of the social market economy. After all, ESOPs enable financial participation in success equally for all employees - not just for investors and founders. At Personio, we have therefore issued ESOPs for all employees, regardless of age, experience and company affiliation. If the law is implemented as planned in the government draft, all employees of young and growth companies can benefit. This is a great lever for us as a company to attract even more talent to Europe as a workplace.”
The improvement will primarily be owed to the solved dry-taxation problem, by shifting taxation to point of sale. In the past, employees have been threatened with a barely calculable tax burden, as taxation could already occur without a de facto flow of liquidity. Positive points were also awarded for the extended scope of application, the increased company age threshold and the larger tax allowance. The lowest score was in the employer tax category, as the non-deferred social security contributions will likely be paid for by startups, which may lead to a limitation of the share programs on longstanding employees to reduce the cost burden.
The ranking marks a milestone for the Not Optional campaign, a policy initiative founded by Index Ventures alongside 500 entrepreneurs five years ago (140 of which are from Germany), with a goal to improve stock option schemes across the continent, and close the gap with the US. Since the launch of Not Optional, improvements have been introduced in the UK, France, Ireland, Sweden, the Netherlands, Spain, Latvia and Lithuania. The European Commission has set up the Working Group on Employee Stock Options to review policies across the EU. Not Optional estimates the campaign drove €5 billion more into the hands of start-up employees in the last 5 years and thus far more employees than in the past have participated in the success of their company.
The Future Financing Act could clearly be an important stimulus for the German start-up ecosystem and the competitiveness of Germany as a business hub. German start-ups would be able to more easily involve their employees in the financial success of the company and thus attract and retain the talent they need for steady national, European and global expansion. As part of the Europe-wide “Not Optional” campaign, supported by 500 CEOs and founders including 140 from Germany, Index Ventures has been calling for the revision of Employee Share Ownership Plan (ESOP) regulations in several countries.
Index Ventures’ ranking is based on six factors: plan scope, strike price, minority shareholders and bureaucracy, employee tax (timing), employee tax (rate) and employer taxation. In each category, the different regulations were combined and scored with a maximum of 5 points. If the FFA passes as it has been proposed, Germany would score 23 (previously 10 p.) out of a maximum of 30 points, putting it on a par with Sweden (23 p.) and almost the USA (24 p.) and ahead of the Netherlands, Australia, Denmark and more.
Katharina Wilhelm, Partner at Index Ventures said: “We welcome the planned reforms in the Future Financing Act. As the largest European economy with a strong start-up ecosystem, it is about time that Germany set up employee share ownership programmes that are competitive in comparison to other international markets to attract and incentivize talents. The Future Financing Act will be a catalyst for start-up growth in Germany and Europe.”
Christian Miele, Chairman of the Board of the German Start-up Association adds: “The Future Financing Act is urgently needed to strengthen German start-ups in the international competition for top talent. Especially in light of the current tense economic situation, these structural reforms are more important than ever. Christian Lindner's proposals could massively improve German regulations for employee participation and give start-ups a big boost. Now the details have to be right. This means: The proposed regulations for employee participation must be aligned with the common allocation of shares at start-ups (so-called restricted shares) so that the law is practical.”
Hanno Renner, co-founder and CEO of Personio said: “If we want to produce international tech champions 'Made in Europe', Employee Stock Ownership Plans (ESOPs) are indispensable. ESOPs enable employees to participate in the company's success - a model that corresponds to the ideal of the social market economy. After all, ESOPs enable financial participation in success equally for all employees - not just for investors and founders. At Personio, we have therefore issued ESOPs for all employees, regardless of age, experience and company affiliation. If the law is implemented as planned in the government draft, all employees of young and growth companies can benefit. This is a great lever for us as a company to attract even more talent to Europe as a workplace.”
The improvement will primarily be owed to the solved dry-taxation problem, by shifting taxation to point of sale. In the past, employees have been threatened with a barely calculable tax burden, as taxation could already occur without a de facto flow of liquidity. Positive points were also awarded for the extended scope of application, the increased company age threshold and the larger tax allowance. The lowest score was in the employer tax category, as the non-deferred social security contributions will likely be paid for by startups, which may lead to a limitation of the share programs on longstanding employees to reduce the cost burden.
The ranking marks a milestone for the Not Optional campaign, a policy initiative founded by Index Ventures alongside 500 entrepreneurs five years ago (140 of which are from Germany), with a goal to improve stock option schemes across the continent, and close the gap with the US. Since the launch of Not Optional, improvements have been introduced in the UK, France, Ireland, Sweden, the Netherlands, Spain, Latvia and Lithuania. The European Commission has set up the Working Group on Employee Stock Options to review policies across the EU. Not Optional estimates the campaign drove €5 billion more into the hands of start-up employees in the last 5 years and thus far more employees than in the past have participated in the success of their company.
