Europe's unicorn founders and investors want to make it easier to spread wealth and compete with Silicon Valley

  • Europe’s leading tech founders and investors are calling for a Europe-wide initiative to make startups more competitive.
  • Proposals include speeding up visa processes, faster incorporation of startups, and better rules around stock options.
  • “There is so much pent up potential in Europe which can’t be unleashed,” Index Ventures’ Martin Mignot told Insider.
  • See more stories on Insider’s business page.

European tech founders and investors are waging a war to improve the continent’s startup ecosystem. 

The European tech landscape has grown dramatically in recent years, with funding totals and the number of unicorn startups hitting new records. But more can be done to turn these firms into global giants competitive with startups in the US and China.

Europe currently produces 36% of global startups but only 14% of the world’s unicorn companies, per McKinsey research.

This is because Europe’s ecosystem isn’t able to incentivize talent to work for startups over big tech firms, according to a series of leading founders and entrepreneurs, who have formed a policy group called Not Optional.

This group is pushing for an EU-wide adoption of the EU Startup Nation Standard, a voluntary, new set of proposed policies designed to bring the continent more into line with the US. 

While the tech industry has welcomed the proposals, this group wants EU member nations to adopt them into legislation.

Signatories of the lobbying effort include Wise cofounder Taavet Hinrikus, UiPath CEO Daniel Dines, Klarna founder Sebastian Siemiatkowski, and Atomico and Skype founder Niklas Zennström. 

Spreading tech wealth to employees

One factor in Silicon Valley’s success as a cluster was the fact that early employees at risky startups were rewarded almost as highly as the founders. Remunerated with a standard salary as well as shares, these employees became incredibly wealthy when the firms they helped build sold or floated at high valuations.

This enabled an entire cohort to build or fund the next generation of companies.

Notable examples include early Facebook employee Dustin Moskovitz, who cofounded Asana, and Todd McKinnon and Frederic Kerrest who cofounded Okta having previously worked together at Salesforce. 

The picture is different in Europe, where the rules around how much stock employees can be awarded, and how that’s taxed vary country by country.

In turn, Not Optional says, that’s a drag on talent recruitment and growth.

“The reality is that there is still a lot of discrepancy between markets in Europe,” Martin Mignot, partner at Index Ventures, told Insider. “Talent is biggest leverage to help startups to compete against big companies but there are massive stock option variations between countries. Conditions are not attractive enough in some countries which means its harder to scale up across Europe.”

Strict or difficult-to-implement stock option rules are seen as one of the reasons why Europe has traditionally struggled to keep up with the US. 

In Germany, Europe’s largest economy, for example stock options for employees are almost entirely absent. Share options are treated as “dry income” by the German tax system, meaning they are taxed upon receipt like a salary rather than at a liquidity moment such as an IPO through capital gains tax, as is more common elsewhere. 

Hanno Renner, CEO and founder of German HR unicorn Personio, told Insider that it would have been easier to grow the business when it was founded in 2015 if stock options had been a possibility.

He is one of the many tech CEOs in Europe to sign up to the Not Optional pledge in a bid to make the wealth generated by high growth businesses fairer. 

“It’s social thing in Europe, we have 672 employees and it is because of them that the business is successful, not just the founders. We need an opportunity to make sure everyone who has a positive impact on the business benefits from it,” he told Insider in an interview. “As it stands, investors and founders benefit financially from this success but it’s not a fair system.”

The crux of the issue for Renner is the inherent risk vs reward argument when it comes to employment.

“It’s natural selection that some talented people will want security in a job and work in a company for 40 years and others will want to work in a fast paced, high-growth environment,” he added. “But when you are in between it’s hard to take a risk working at a startup when you will be paid a lower salary if you can’t incentivize talent with shares.”

So far, 25 countries across Europe have signed up to the framework. The only ones that haven’t are Hungary, Bulgaria and Croatia. Those that have signed up will now be expected to change their rules over time.

For Not Optional, changing the rules around stock options is a key policy focus that they’d like to see translate to legislation.

Other proposals in the Startup Nations Standard include speeding up visa processing, so that startups can hire from a broader pool of talent and in order to bring in more experienced operators to help grow their businesses. They also include speeding up startup incorporation in the EU and enabling this for no more than €100 ($119).

“There is so much pent up potential in Europe which can’t be unleashed,” Mignot said. “We’re not asking for a re-invention of the wheel, we just want to apply best practice across the whole of Europe.”

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