In a survey of 350 scaleups, Index Ventures found that employee ownership of the company is reaching levels previously only seen in US-based startups. With the war for talent never being more dire, it’s clear that European startups are taking a page from their Silicon Valley counterparts and using stock options as a vital tool in attracting and retaining key staff.
Traditionally, early growth stage European startups will max out at 10% in stock options allocated to employees. However, Index found that over the past five years these numbers have steadily been on the rise, with later-stage growth companies upping the numbers between 15%-17% at a Series D round, thus bringing them in line with what American startup employees are used to seeing, some 20%-23%.
As we’ve seen over the past year alone, Europe has been the beneficiary of almost more venture capital investments than it can handle (yes, I know I’m going to regret those words), so the traditional answer of, “underfunded” and/or “bridge the funding gap,” has more or less gone out the window. So with so much capital floating around, and it’s really a buyers market, how do the most promising scaleups land the best fish?
“Funding used to be the major bottleneck to company growth in Europe,” says Index Ventures’ Dominic Jacquesson, lead author of the research. “Today instead, it’s the best talent – the developers, the salespeople, the communication strategists – that are the hardest to come by, and the most fiercely fought for. They’re asking for, and getting access to, the greater returns available on capital.”
Note that Jacquesson first mentioned developers, and this is in line with Index’s findings: technical roles, particularly in upper management, have seen the lion's share of options heading their way.
However, it’s not all hearts and roses, as European regulators are still putting restrictions on entrepreneurs, with more red tape involved in the deployment of equity than their US counterparts, with pools sitting, on average, 3% smaller.
All in all, the Index Ventures data points to a rapidly maturing European ecosystem, one that no longer has to stand up against the wall and watch the party from afar, but is not only taking its place on the dancefloor but in some cases, acting as DJ too.