However, what we usually find is the creation of a dual product team. You can give your employees a helping hand by educating them on how to exercise options. The cost of advice and set up around transfer pricing and sales taxes will vary, but Frazier & Deeter provide a package for around $7k. Startups still pay lower cash salaries, but competition for talent is forcing them to narrow the gap. On the consumer side too, New York (together with Los Angeles) is the largest, wealthiest, and most influential US city. Independent valuation is critical for plan to be defensible to tax authorities. Total individual shares your company can issue. They identified targets for initial beta customers, and the integrations required. We see their role as crucial in helping to create a regulatory environment which fosters entrepreneurship and innovation. In several countries, whilst valuations may not be tax-assured, there are precedents for offering reduced strike prices, which are unlikely to be challenged later on. The ESOP also lays out the standard terms and provisions for stock option grants by the company. We believe this difference is a key issue in the European startup ecosystem which needs to be addressed. We are confident that Europe will produce more and more tech success stories in the years ahead. Lemonade hired for potential, developing people over time. This is self-evident if you have a physical or service component to your business model (eg local e-commerce). We suggest you look to your highest performers, as determined by using the performance grid we introduced in chapter 6. They must show a willingness and commitment to spend time with you in Europe - for board meetings, and beyond. Angular Ventures is an early-stage VC fund focused on backing European and Israeli enterprise and deep-tech founders as they build global category leaders. Such changes would create more winners amongst employees at successful startups. B2B examples: Collibra, Mimecast, Algolia, Nexthink, UiPath, Unity Technologies. In 2007, when still a team of just eight, they held their first developer conference in SF, with 60 attendees. Zendesk now has almost 1,000 employees across Europe, a quarter of their global workforce. As your team grows, the size, dates and strike prices for every new grant should be carefully monitored. Jean-Baptiste Rudelle, co-founder and CEO, viewed Criteos dual locations as an opportunity. Whilst this makes them economically valuable, they do not represent true employee ownership, No restrictions apply to a virtual scheme, Typically use the valuation from last funding round, to avoid potential liability for employee, Virtual plans are fairly straightforward to set up, Most startups allow leavers to retain vested virtual options. The rest of the business team remained mostly in London, and this worked well. Co-researched with Zheela Qaiser. The PEO will also look after the provision of US health and pension benefits, which are complex and unfamiliar ground for Europeans. The size of your seed round also has a big impact. As you ramp-up in the US, you need to ensure that your vision is being realised. If enabled we will embed youtube videos directly on the site, if not we'll display a thumbnail. It makes sense to disclose retention grants to employees once they are between 2.5 and 3 years into the vesting of their previous grant. Whilst the Latam opportunity in the US was bigger, the company wasnt live there yet. These countries have policies which strongly support the use of stock options by startups: at all stages of growth, and for all levels of employee. This reflects the fact that many European employees receive no options at all. As you scale, advisors are more likely to be specialists, with a narrower brief. Modest discounts are possible, but are not assured, Most startups have standard US leavers policy exercise vested options within 90 days or lose them, Only at point of exercise (assuming employee has <5% ownership, otherwise also taxed at point of sale), Gains on exercise subject to income tax (8.952%) plus social tax (up to 27.65% on annual income up to 33,791), 25% of the gain at exercise is considered non-taxable, on up to 50,000, On exercise, the company pays about 16% of the gains as social security taxes (only up to employee total income 53,701). - Nurturing strong leaders below them Current policies discourage stock options on two levels: It can be complicated and expensive for employers to grant stock options to their employees, with different schemes required for each European country. If you need minimal localisation, you could go for a soft launch, learning and optimising in iterations. The main problem with these schemes is their scope they are not available to all startups. Fundamentally, you are best-placed to succeed by starting your company in the place where you have the strongest network and support. It thereby helps to build an employee-friendly culture and attract new hires. They have less than $150 million in assets under management and operate 19 private funds. Much of the communication had to be translated, including media relationships and marketing hires. For junior hires, salaries tend to be closer to market value, since people still need to pay their bills. incremental benefit of closing that key hire is Some software developers, if not all, will ask about stock options before they join. In the US, equity grants for Chairs average 0.85% at SeriesB or C, with a range of 0.5% to 2.0%. Zendesk, Dropbox, and Slack all evolved in this way. They will also be more comfortable with cultural differences, allowing them to translate between US and European approaches. With so many jurisdictions and regulations, it is important that they are informed and prepared. An employee sacrificing cash in return for options, which vest over four years, should be eligible for a corresponding salary increase the following year. This gives more flexibility for hiring plans, and salaries. All non-technical leadership is now in the US, with the exception of a dedicated GM EMEA. Dilution also affects stock option holders. You will also find guidance on stock option practice and policies for twelve additional countries, within Europe and beyond. So adapting your ESOP approach may be in everyones interest. Hiring great people from the start helped to set them up for success, raising the bar for further hiring. When it comes to experienced executive-level talent, critical mass only exists in the three hubs mentioned earlier. They have a small R&D hub in Madrid with some customer support and salespeople in the UK, France, Germany and Dubai. It also shows the notional Second, the Anchor - a more modest expansion model. We advise that you tailor your leaver policy according to the specific situation in your country. Sam, one of the co-founders of ELN, was a key benefit of the acquisition. 2015 $58M Series C Alternatively, startups (particularly in Germany, Spain, Austria, and the Czech Republic) have resorted to offering virtual options, which mimic stock options, but dont offer ownership in the same way. Unless you have an experienced and senior sales leader in your landing team, we caution against hiring more junior individuals on day one. Explore ways of moving up the value chain with higher ACVs and larger organisations, using inside sales (B2B only). Other common Index Ventures email patterns are [first]. From day one, your message should be the same for every employee (there are some exceptions to this on the right). Being frank and honest will help build trust with your employees while encouraging everyone to Your lawyers can help Americanise your commercial contracts, apply for trademarks and patents, and evaluate data residency, privacy, and regulatory requirements. Vesting schedules and leaver provisions were particular sticking points: established UK policies were seen as prohibitive in the US. It lists all the shareholders, and the number, class, and percentage of shares each holds. In much of Europe, employees need to pay a high strike price, and they will be taxed heavily upon exercise as well as sale. By customising grant levels and hiring plans, you can quickly test and refine your allocation strategy, and check the impact on your overall ESOP. However, whilst we welcome this change, it is only available to companies with one class of shares, and therefore not catered to VC-backed companies, which usually have two main share classes: common and This guide has been written to help you. If theyre experienced software engineers, or have taken a large pay cut to join, they will likely expect some level of ownership, even in Europe. We rarely see situations where it makes sense to offer retention grants to more than 50% of employees: You would usually be better off applying larger retention grants to your key individuals. Weve included the basic information you need to design your stock option plan and policies, ready-to-use allocation models, and advice from those whove been through it plus our own perspective as investors. Since January 2017, every full-time Farfetch employee is offered an option grant. It was introduced in 2000 and amended a few times since. Establish small business development team (likely in the Bay Area) as youll probably have major channel or product partners in the US. Include a separate table, summarising your ESOP and FDE position before and after: You should work with a lawyer to make sure that all registrations and returns associated with your Founder/CEO: David Helgason until 2014, John Riccitiello since. Strengthen product management, so the CEO can step away from day to day involvement. Our research into employee ownership and stock options at Index Ventures is ongoing and we will continue to expand and update our data. Having a physical US presence was deemed strategically critical by Jos, to avoid US-based copycats from locking them out, and also to secure US boutiques on the supply side. It opened doors in the US that had been closed before. This means employees are only given stock options if they hit targets that drive your long-term value, like revenue growth. It is likely to include one or two executives relocating from the US. Focus on European expansion for now, rather than on US and expand into an additional European market. This is regardless of whether a founder is also in the US from day one. Originally there was a product and engineering team in Tallinn focused on US and Americas localisation. Instead, they found a good PM in France, who travelled a lot to the US; and they relocated a senior product leader from SF to Paris, who was a French expat. Overall, headcount grew from 250 to 500, across 10 offices. For example, if you are a solo founder who needs to hire in a wider range of experienced skill-sets to complement your own. A six-person squad was formed, responsible for US expansion. Index Ventures We are a multi-stage international VC firm. The Anchor archetype is common in situations where US expansion comes later in the journey. For late-stage companies, they own around 10%, versus 20% in the US. For startups HQed in France, the BSPCE plan is highly favourable, compared to most other European countries. Ultimately, a decision in favour of US expansion was made, because there was a landgrab opportunity, with no embedded US competitor yet. It is better in this situation for the entire founding team to move over, following our Transplant archetype. Farfetch kept almost all development in Portugal. In 2015, UiPath raised a $1.6m seed round, and flipped to a US topco. The South African co-founders of Mimecast, Peter Bauer and Neil Murray (CTO), were in London when they set up the company. If enabled we will embed vimeo videos directly on the site, if not we'll display a thumbnail. - Regionalisation and verticalisation Digital pure-plays, where acquisition and fulfilment dont require boots on the ground, usually follow the Telescope model, only building a small US team. They should bring a blend of analytical and GTM experience, and have US insight. This fund was announced on Jul 22, 2021 and raised a total of $900M. Jos and Michael jointly banged on the doors of top US boutiques to sign them up. Get it right, and your employees will understand the plan, and make the most of it. Even so, startups often do use stock options or similar instruments anyway. This may dictate the location of certain roles, even if you operate a fully-remote model with no offices. Following Series A, if not before. In these cases, your proposition will only resonate with US investors for later funding rounds. indexventures.com. The company had already built coverage across the EU (both Eurozone and non-Eurozone) as well as Norway and Switzerland. But research US market, with frequent visits and preparing a launch plan. If youre hiring a COO, carefully evaluate how complete their skill set is. To help us provide the best quality content we monitor the most popular pages on our site. The mechanics and structuring of the acquisition were difficult and expensive, with 3 SPVs to optimise the financing and tax structure. Suggest edits Type B2c Founded 1996 Follow us Featured on Also headquartered in San Francisco Ahelpfulghost Uber Instagram TikTok Airbnb Lyft Coinbase Fitbit LinkedIn In the very early days the team used Aircall to do sales calls from Paris 24/7, pretending they were in the US. Revolve sold their stake steadily as Farfetch scaled (Series B-D), making the JV a win-win. Scale your GTM team in US - including CMO and CRO. Depending on the number of options and strike price, this may be unaffordable. 2012 $60M Series D, Fundraising up to listing: $86M, Series D, Headcount split: 4000. Even after raising a Series B, giving you deeper pockets, you may still need to choose between pushing for pan-European dominance, or winning a foothold in the US. In terms of location, the team conducted a comparison between NY and SF. This provided a large talent pool. We provide frameworks you can use to plan and execute the right combination of strategic, tactical and practical moves. A summary of each potential journey is presented below, after which we will discuss some specific recommendations for each of the archetypes. Do they have proven experience in scaling startups? Its still early days for these new methods in the US, so its likely to be some years before we see them emerge in Europe. Employee ownership has been at the core of Silicon Valley thinking for over 30 years. Obtaining discounted strike prices involves getting locally approved valuations, which can be messy: options will be worth different If you were to follow this scenario entirely, youd need a 12% ESOP to cover your needs up to your SeriesB fundraise. They wanted to be selected on the basis of brand, and not on price. Retention grants are covered in chapter 9. Mike explains: Just Eat carefully positioned their grants as something to put in a drawer and forget about for now but which might be worth something in the future rather than as a core part of compensation. New ideas in compensation data and design for private, venture-backed companies. But there is still an advantage to keeping hubs relatively close in terms of timezone. Vested employees are invited to offer options for purchase by pre-approved outside investors, often through an independent tender. Pick up on potential frustrations, air them, and adjust meeting dynamics to ensure things run smoothly, Have a no post-mortems policy. Unsurprisingly, London Europes largest startup hub has the highest expectations overall in Europe. There was a lot of communication to ensure that those in Europe understood the need for this investment. Index led a Series B in 2009, and soon encouraged Peter to move to the US. The larger portion of the US team is now there. The lockdown has given the world a crash-course on how to use Zoom, Slack, and other modern tools, accelerating these trends by 5 years or more. Founders may split their time (ie their lives) between the US and Europe, and functional heads will be hired in either geography. 2014 $1.3M Seed There is no set job description for an advisor. Adyen operates as a unified company, with a single global P&L. However, you should be thoughtful in building a product and an organisation that is primed for US-launch. Ensure employees have the financial knowledge to understand your offer, Create rules that encourage fairness and retention e.g. Find a team member, company, or Perspectives piece. The result is that these startups have the people they need to succeed early on. Its not easy to determine how much equity employees should get particularly if youre a first-time founder. But they then benefit from capital gains tax rates on any upside, deferred to the point of sale. Daniel Dines and Marius Turca (CTO) founded DeskOver in Romania in 2005. The most ambitious European companies will aspire to hire experienced and proven talent. They are unlikely to be interested in your company either. Europe is where they build their early product, raise angel or seed funding, and make their initial hires. And your product is also purely software, so you dont need an extensive distribution or fulfilment structure. The distributed leadership model at Criteo persisted (in fact, through to today). As noted earlier, we predict a lot more European-focused success stories, in B2B as well as B2C, in the years ahead. This is less true for SMB-focused startups, which may therefore align more closely with the Pendulum archetype, rather than the Compass. A broader acceleration policy could seriously impede your chances of a successful exit. With most functional leadership sitting in Europe, it is usually best to give significant autonomy to the US, so that they can optimise for US market needs. In Europe, advisors are more likely to expect a cash component, for example in the form of a day-rate. All rights reserved. Nowadays, seed deals can sometimes look more like a small SeriesA, with $4 or $5 million raised. Sign up Login This profile . Seek legal advice to avoid nasty surprises. In the table above, weve used the term Senior to define either a highly experienced and capable individual with no people management experience, or someone with slightly less experience, but who is managing a small team. Kings founding team set out to develop skill-based web games. Another common challenge with relocations from the US relates to compensation. Index Ventures raises $2 billion for early-stage, growth investments. They switched to granting RSUs for most employees, with options for some senior executives. The campaign is already yielding results through engagement with the European Commission and national governments. No. shares that investors generally hold. It is a way, however, to offer a competitive benefits package and could contribute to a positive employer brand when competing for talent. Management has no ownership stake in the fund. In 2009, revenue grew to 16m and headcount to 70, with mostly French customers, plus a few inroads into the UK and Germany. Mr. Shardul Shah serves as Partner at Index Ventures. At seed stage, you will be hiring your first few employees probably no more than ten. US cultural anxiety about riding with a stranger, relative to Europe (BlaBlaCar). However, it is unclear how they will be viewed by tax authorities or courts in the case of a significant liquidity event in the country, Leavers are typically allowed to retain vested virtual options, At point that employee receives cash benefit usually only during a liquidity event, The benefit is taxed at marginal rates (2023%) and social security and health insurance contributions (11%), Social security and health contributions (about 34%). Salary and rents are extremely high in New York, and even higher in the Bay Area. Without acceleration rights, they have an incentive to delay until their options are fully vested. Spendesk has developed a double down or retreat framework including marquee logo milestones. The ideal functional composition of landing teams can vary a lot. However, choosing the right policy for your leavers is complicated by questions of taxation, strike price, and headaches that come with having minority shareholders. The ambition is there, and the essential elements are coming together: strong talent pools; experienced leaders, investors, and service providers; excellent infrastructure; and generally well-regarded legal systems and regulation. These mistakes can unnecessarily dilute your stake in the company and make it difficult to attract further funding. It is still important to push hard and early for US users and customers. Carta recommends issuing every grant with the disclaimer that all equity is worth $0 until your company reaches a liquidation event. Your permanent presence as the CEO is the strongest signal that you can provide to the market of your commitment. As its a more mature market, the US tech ecosystem has standardised policies. These schemes do not apply to employees or directors who hold more than 10% of the companys issued shares, There are no specific limitations in terms of size or stage, For companies with a US presence, 409A valuations are generally accepted by Israeli tax authorities (frequently 60% below last round valuation). Culturally, you may feel all your employees should be treated the same, regardless of where they are. Following your customers is a good tenet, but qualify this with not only where your current customers are - but where your future audience is likely to be. The CEO or another exec can champion the project but should not oversee day to day research. The Democratic Mayor opened the site, exclaiming how happy Cuban factory workers would have been about this immigrant-supporting company. He was solid, experienced, and ran the US until recently, building inside and field sales teams. Despite internationalisation, Index was determined to remain one team (which remains a core Index value), avoiding any sense of HQ, or hierarchy between offices. Know when the Acceleration without a double trigger, and acceleration for non-executive staff, are both rare in the US. Limitations on social interaction may be required for years to come. Many have been inspired to become founders or angel investors themselves, creating a virtuous cycle of innovation and startup activity. This is typically triggered by the hiring of a US-based CTO. This is because these individuals are critical to a successful exit. You can do this on an ad hoc basis, but by SeriesB or C, we recommend you establish a more formal approach. Alternatively, you may offer a superior product, but need to dislodge incumbents. Such markets received bad press in 2012, when pre-IPO Facebook stock changed hands at dramatically varying prices, with little oversight. There are some great sources of information available online which can help you navigate specific operational topics around US expansion. The decision to build a globally distributed team means Elastic doesnt have to compete head-to-head for engineering talent with the tech giants. If an employee joined early, the strike price may be very low a 60% discount on the last-round valuation is not uncommon but exercising options can still be expensive. Nothing erodes employee trust more than over-promising on rewards that may never materialize. At this point, you will have a substantial European business to protect and grow, and a more mature leadership team in place. While theres no perfect number, 10 million is a good figure to aim for. Cash may be more important if the advisor is making a heavy time-commitment supporting you. SVP Corporate Development & General Counsel, DataStax. Since 1996, we've teamed up with exceptional entrepreneurs in 20 countries, who are changing the world around them. Too much glass and no soft furnishings will result in poor audio quality, Be aware of room size, and participants distance from the microphone(s), Include a wired option for connection. Employees with limited knowledge arent the only potential problem. Get Index Ventures contact information, portfolio companies, & partner emails in one place, all for free. Another feature of many globally successful European B2C startups is to scale via London. The discussions allowed a valuable sharing of thinking about platform product roadmaps, based on a raft of data collated by Kings partnership team. She also serves as a Partner at Hive Ventures. Initially they focused on expat networks of Brits, Europeans, and Australians. Regardless of which of the following four archetypes is applicable, for the purpose of this book, startups tend to share similar beginnings. In fact, you want to pursue a distributed coverage model with reps across the US.
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