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Startupnight supports Not Optional initiative

Germany offers the second-worst conditions for employee ownership among 22 European countries

Today, the avail­abil­i­ty of tal­ent, not the lack of cap­i­tal, is the biggest bot­tle­neck to growth of Euro­pean startups. The Not Optional pledge calls for improvements of the conditions for stock options and employee ownership in Europe.

  • Cem Ergün-Müller, Founder Startupnight

2021 has so far seen record volumes of investments flowing into European startups. In Germany alone, the amount of newly raised capital for startups tripled compared to the previous year, to a total of 7.6 billion euros. According to an analysis by EY, the number of financing rounds rose to 588, an increase of 62 percent. But at the same time it's becoming clear that increasingly the avail­abil­i­ty of tal­ent is the biggest obstacle for growth on the continent.

Global demand for European talent

On one hand, Europe boasts excel­lent edu­ca­tion­al insti­tu­tions which churn out a significant share of the world’s most promis­ing soft­ware engi­neers, data sci­en­tists and design­ers. Alumni of these institutions are in global demand from the largest and most cash-rich cor­po­ra­tions.

Star­tups in Europe are at a disadvantage since they cannot com­pete for this tal­ent with salary and ben­e­fits alone. To compensate, they could offer employ­ees a mean­ing­ful own­er­ship stake, in the form of stock options – reward­ing the risk employ­ees take with a young unproven busi­ness with a promise of a pay­out should the start­up succeed.

Employee ownership

While employ­ee own­er­ship is a standard component in US packages to attract and retain tal­ent need­ed by star­tups with lim­it­ed cash, but near lim­it­less poten­tial, in Europe it is offered incon­sis­tent­ly and at far low­er lev­els. According to the Not Optional initiative, which was founded by Index Ventures alongside some of Europe’s leading entrepreneurs, employ­ees of US star­tups own twice as much of the com­pa­nies they work for com­pared to their Euro­pean counterparts.

The initiative compiled a ranking to compare the situation in 20 European and 4 Non-European countries. The situation in Germany in particular, even after some adjustments by the federal government in 2020, is dismal. The country offers the second-worst conditions among the countries examined, with only Belgium scoring worse.

The problem in Germany is the timing of when stock options are being assessed by the tax office, which already wants to see money when employees have just been granted the stock options, so they have no cash inflows yet.

Startupnight supports Not Optional initiative

We at Startupnight are convinced that some serious amendments to German tax law are needed to mitigate these problems, both on the national and the European level. We therefore fully support the Not Optional initiative and call on German and European lawmakers to find solutions for a situation which is clearly a disadvantage for the European startup ecosystem.

Your Startupnight Team
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