European start-ups call for stock option reform to help them compete with Silicon Valley

///European start-ups call for stock option reform to help them compete with Silicon Valley

European start-ups call for stock option reform to help them compete with Silicon Valley

The bosses of 30 European start-ups have called on politicians to reform rules around employee stock ownership to help them attract more talent and compete with their Silicon Valley counterparts.

Chief executives from firms including TransferWise, Stripe, PayPal-owned iZettle and recently listed Farfetch co-signed an open letterurging lawmakers in the continent make changes to existing regulations on employee stock options.

“Without delay, we call on legislators to fix the patchy, inconsistent and often punitive rules that govern employee ownership,” they said in the letter Wednesday.

Employee stock options grant employees the ability to buy a specified number of shares of the company they work for at a certain price and at an agreed time. According to U.S.-based venture capital firm Index Ventures, tech workers in the U.S. own twice as much equity in the companies they work for than their European counterparts. The investment firm adds that there is an imbalance country-by-country, with the U.K. having the “most favourable” regulatory and tax conditions for start-ups when it comes to stock options and German and Spain being “most in need of change.”

The U.K.U.S.France and Ireland are seen as more favorable when it comes to employee stock options, according to Index Ventures, due to policies such as tax deferral, the ability to reach lower strike prices than for previous funding round valuations and fewer obligations for companies to pay levies on stock option awards. It adds that the likes of Germany and Spain score lower on this front due to a lack of programs supporting stock options and administrative barriers.

Start-up executives said in the open letter that current rules around employee ownership 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,” they said.

The letter goes on to recommend the creation of “start-up friendly employee share ownership schemes,” although it goes into little detail as to what those schemes should look like. The entrepreneurs added: “The next GoogleAmazon or Netflixcould well come from Europe, but for that to happen, reforming the rules of employee ownership is definitely not optional.”

Read the rest of Ryan Browne’s article at CNBC