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This is the first I’ve heard the point that it’s hard to give employees equity at EU-based startups. - If you’ve worked in tech in the EU, can you share exampl

by jez 3y ago

This is the first I’ve heard the point that it’s hard to give employees equity at EU-based startups. - If you’ve worked in tech in the EU, can you share examples of this affecting you? - Does this also extend to US companies that want to give equity to EU-based employees?

braza 3y ago
The main issue in the article is that the author assumes that those factors "drag" EU startups, but as others pointed out, there are fundamental differences in values, cultures, and principles between those places. > - If you’ve worked in tech in the EU, can you share examples of this affecting you? As I have worked in both ecosystems, some things that I have on top of my mind are: 1) The taxation on unrealized stock options: For me, it's the worst. Roughly speaking, if you have stock options, you have to pay for the appreciation of that stock, even if it is an illiquid asset. And since in Europe we do not have some clear equivalent of 409A, it's a no-go to pay for something that has no intrinsic value. 2) Salaries: Since companies cannot pay with SO, some of them use some synthetic mechanisms like phantom stocks or virtual stock options, but all of them have a small issue: The returns are not so great, maybe 1.05x-1.10x. It's better to be in a big company with a great upfront salary than to run for something that will not provide even a 20% downpayment on a house. 3) Low payment with no learning: People underestimate this aspect, but for me, startups are an environment to deliver and learn at the same time with some cap on the salary. In the US, this is not something controversial, but here in Europe, I know startups where the average developer cannot even choose to work on a Linux workstation and most of the founders have little knowledge of how 4) Talent density: The tech diversity in talent is great here, and it's awesome to work in a multicultural environment, but the problem is that, at least in some places in central Europe, the talent density is not as great as some places in the USA, especially in cultures where the least denominator reigns in terms of accelerating and fostering talents. It's more or less the Procustes bed: if you're short, they will stretch you out; if you're big, they will cut your legs. 5) Talent culture: This is a big difference that I see in comparison with the US. Most of the founders in US see developers as expensive talent but they fundamentally understand that without 6) Low probability of exit; more likely to go and be acquired: Self-explanatory: no one will run to build something that will end up acquired by some other tech company in central/western Europe or have a very low probability of exit. I saw cases where a scaleup was just afloat and meanwhile, the founder and the executive team were enjoying the nice things in Europe while underpaying people with illiquid, non-valuable stock 7) A secondary market is non-existent; most of the contracts do not have the right of first refusal. Once you have this illiquid asset/liability in your hands, it's almost impossible to get rid of it. Due to the cap-table structure here in Europe, there is no culture of selling shares outside.
- raverbashing 3y ago
  A lot of these are very different across countries > I know startups where the average developer cannot even choose to work on a Linux workstation That is more a company issue than country issue. And yes some do use Linux (but I think today the default is MacOS for a lot of startups)
Kwpolska 3y ago
People outside of the SV bubble aren't swayed by the equity nonsense and prefer to be paid actual cash.
- gumby 3y ago
  When I sold my first company even the receptionist (in her sixties and divorced) was able to pay off her mortgage and retire. There’s no guarantee but it happens more than you would think.
nvm0n2 3y ago
Yes it's famously problematic. It's got better with time partly due to US based firms coming in and blanket offering lots of employees they hire there equity so tax authorities were forced to figure out their policies, but for example when I joined a US FAANG from a European country in 2006 I was warned that the tax authorities might question the equity because they weren't really familiar with stock options. Mostly the issues are therefore related to strange tax rulings that would lead to bankruptcy in some cases. It's not unique to the EU, the USA also has some edge cases where people can be bankrupted by tax bills on money they never received.

by jez 3y ago

braza 3y ago

The main issue in the article is that the author assumes that those factors "drag" EU startups, but as others pointed out, there are fundamental differences in values, cultures, and principles between those places. > - If you’ve worked in tech in the EU, can you share examples of this affecting you? As I have worked in both ecosystems, some things that I have on top of my mind are: 1) The taxation on unrealized stock options: For me, it's the worst. Roughly speaking, if you have stock options, you have to pay for the appreciation of that stock, even if it is an illiquid asset. And since in Europe we do not have some clear equivalent of 409A, it's a no-go to pay for something that has no intrinsic value. 2) Salaries: Since companies cannot pay with SO, some of them use some synthetic mechanisms like phantom stocks or virtual stock options, but all of them have a small issue: The returns are not so great, maybe 1.05x-1.10x. It's better to be in a big company with a great upfront salary than to run for something that will not provide even a 20% downpayment on a house. 3) Low payment with no learning: People underestimate this aspect, but for me, startups are an environment to deliver and learn at the same time with some cap on the salary. In the US, this is not something controversial, but here in Europe, I know startups where the average developer cannot even choose to work on a Linux workstation and most of the founders have little knowledge of how 4) Talent density: The tech diversity in talent is great here, and it's awesome to work in a multicultural environment, but the problem is that, at least in some places in central Europe, the talent density is not as great as some places in the USA, especially in cultures where the least denominator reigns in terms of accelerating and fostering talents. It's more or less the Procustes bed: if you're short, they will stretch you out; if you're big, they will cut your legs. 5) Talent culture: This is a big difference that I see in comparison with the US. Most of the founders in US see developers as expensive talent but they fundamentally understand that without 6) Low probability of exit; more likely to go and be acquired: Self-explanatory: no one will run to build something that will end up acquired by some other tech company in central/western Europe or have a very low probability of exit. I saw cases where a scaleup was just afloat and meanwhile, the founder and the executive team were enjoying the nice things in Europe while underpaying people with illiquid, non-valuable stock 7) A secondary market is non-existent; most of the contracts do not have the right of first refusal. Once you have this illiquid asset/liability in your hands, it's almost impossible to get rid of it. Due to the cap-table structure here in Europe, there is no culture of selling shares outside.

raverbashing 3y ago
A lot of these are very different across countries > I know startups where the average developer cannot even choose to work on a Linux workstation That is more a company issue than country issue. And yes some do use Linux (but I think today the default is MacOS for a lot of startups)

Kwpolska 3y ago

People outside of the SV bubble aren't swayed by the equity nonsense and prefer to be paid actual cash.

gumby 3y ago
When I sold my first company even the receptionist (in her sixties and divorced) was able to pay off her mortgage and retire. There’s no guarantee but it happens more than you would think.

nvm0n2 3y ago

Yes it's famously problematic. It's got better with time partly due to US based firms coming in and blanket offering lots of employees they hire there equity so tax authorities were forced to figure out their policies, but for example when I joined a US FAANG from a European country in 2006 I was warned that the tax authorities might question the equity because they weren't really familiar with stock options. Mostly the issues are therefore related to strange tax rulings that would lead to bankruptcy in some cases. It's not unique to the EU, the USA also has some edge cases where people can be bankrupted by tax bills on money they never received.