
Giving options in European startups - jkaljundi
http://kaljundi.com/2012/10/07/giving-options-in-european-startups/
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andyshora
I joined a promising startup 18 months ago as the 3rd developer, employee #6,
and was promised vast riches in the very near future. I was promised a decent
amount of preferred stock options which 'would make me rich', and joined on a
salary about £15k less than I could have earned at an established company down
the road.

Over the next few months, while the company size went from 6 to 20, and the
board were organising the stock options scheme, I was still highly motivated
by the favourable options which had yet to be sorted out. A year in, and I was
given a very very small fraction of the 11% option pool, which would amount to
less than 0.1% of the total shares, which was also subject to dilution. At
this point I had all of the speculation previously made by my superiors
denied, my importance to the company was downgraded, and I struggled to
negotiate a raise in salary that would bring me up to what I'd call an average
salary.

This whole procedure was very demoralising, I would have been happy with no
options and a decent salary to start with, and all of the speculation of how
many billions the company would get acquired for in a years' time would not
have bothered me in the slightest. After all, we had no customers, had not
launched a product, and I was a key developer. Needless to say I left shortly
after to start my own company.

When I left, they offered to 'do something' about the options and give me the
raise I wanted, but at that point for me the damage had been done, and I no
longer had the ambition to work there. I didn't execute any of the options
that had already vested, and used this £300 to start my business.

From my own experience and speaking with a lot of other startup employees in
the UK, I believe we care more about the starting salary, and absolutely have
to treat options as a bonus. Not only because of the dampened IPO/acquisition
outlook in Europe, which i think many startup employees are unaware of, but
because startups are a smaller part of our economy. In London for example,
'Tech City' is right next to THE city, where my friends work. You've got guys
earning nothing at a startup, working and meeting for drinks, and living with
friends who work at banks down the road. I would imagine the US startup scene
feels much more like a microcosm, and because we are yet to have that level of
separation in culture and circles we socialise in, the difference in lifestyle
a salary gives you is a lot more noticeable.

I regret not adapting this mentality from the start, and when we hire our
first employee, I will certainly make sure the reason they are taking the job
is not the millions they are guaranteed to make in a few years' time.

~~~
Swizec
A simple rule I have for dealing with this sort of situation: I'm either a
freelancer or a cofounder.

Strangely enough, saying that one line _has_ changed a conversation from "Hey,
wanna work for my startup?" to "Hey, wanna be CTO/cofounder at my startup?"

~~~
eps
So how many times were you a cofounder to date?

~~~
reitzensteinm
Even if his answer answer were zero, that wouldn't make the rule invalid - in
fact, it sounds down right sensible to me.

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PeterisP
Perceived stock worth for employees is highly correlated with liquidity - and
there is almost no liquidity for most of european startup stocks.

Even in the great local success stories IPO's are not the goal, and the
employee-stock of a successful company is practically useless, as you can't
really sell it when you want to (no buyers unless the company itself is sold)
and there will be no dividends in the foreseeable future, as all profits are
reinvested in growth.

0.1% in a billion-worth company should be a life-changing financial event,
winning the "startup lottery" by working your ass off to build a great product
from nothing. But what good is it if you can't use it to buy a car or a house?
It's just paper.

~~~
Swizec
I keep saying this on HN, but I'll say it again: Equity is not tasty.

Now freelancing for startups, that's a whole different ball game. All of the
realistic benefits, none of the risk.

~~~
wslh
It is an interesting point: startups are a market target. Providing services
for startups can be an excellent source of income.

My company was selling primarly to startups until the 2007 crisis, it was no
intentional but very profitable: we were benefited by companies which changed
their products a million times without any profit. After the crisis,in
2009/2010 we ended up having established companies as cutsomers. One of the
reason is that less outsourcing and less investments are made by startups.

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lrem
This article completely omits the question of laws. As far as I know, they get
quite convoluted in this regard in some of the countries. I remember that once
my father's company got the idea to give out some stock, they found out that
doing that legally was pretty hard. What they finally did was selling the
stock at what they perceived market value, giving at the same time cash bonus
equal to that value. If it's going to be that complicated in your case, you'd
better be pretty sure that people are really interested in the stock...

~~~
eps
From what I've been told the European laws made establishing anything but the
SARL/Gmbh (LLC equivalients) a fairly complicated deal up until recently. And
this sort of company restricts share sales only to family (?), but not to the
employees and not in a staright-forward fashion. In recent years though the
laws has changed, and so setting up SA (Inc equivalents) is much simpler now.

~~~
davidw
> From what I've been told the European laws made establishing anything but
> the SARL/Gmbh (LLC equivalients) a fairly complicated deal up until recently

That's still plenty complicated in many countries - Italy, for instance,
although we did manage to improve things just a little tiny bit:

[http://www.governo.it/Notizie/Presidenza/dettaglio.asp?d=690...](http://www.governo.it/Notizie/Presidenza/dettaglio.asp?d=69038)

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opminion
Employment agreements, in terms of how risks are shared, differ in that
employees and the state expect the employer to take a higher risk over the ups
and downs of the business in Europe than, say, in California. It has an effect
over the meaning of share options.

Employers do not have any incentive to share a positive future when (they
perceive that) the employees do not share a negative present.

~~~
troels
I'm not sure I understand what you mean. Usually, stock options would be
accompanied with a lower salary. That is surely a negative present?

~~~
opminion
Yes, but that would be assuming that salaries have a market value.

In Spain salaries are often raised by collective bargaining. I don't know how
much an effect it has on software developers, but the law is intended to raise
the minimum salary for junior developers thus reducing the possibilities for a
consensual agreement on a low salary.

<http://en.wikipedia.org/wiki/Collective_bargaining>

Similar for holidays, working hours, etc.

~~~
troels
OK. So you mean that compensation (The whole package, including social
benefits, long vacations etc.) is greater in Europe, than it would in the
states? I don't really believe that. Not if we're talking software engineers
at least. A country like Spain would probably have average wages on the range
of half what it would be in the states. And even in some of the better faring
European countries, salaries still seems to be slightly less than what they
are in the valley.

~~~
opminion
Of course I didn't say that.

I said that compensation is affected by other forces than supply and demand
(market value), so that the minimum compensation is higher than it would be at
market value _in that country_ , not that it is higher than _in the US_.

Related to that, the southern European countries don't have individual control
over the currency, so prices are higher than they would be if they were in
control of the Euro. Salaries have been raised by law (civil service,
collective bargaining, state pensions) in order to match prices. As a
consequence, those salaries do not correspond to productivity, so employees
are expensive, which pushes unemployment up.

If you employ people in Italy a main problem will be that your employees have
to pay European prices for food and clothing. In order to prevent what many
consider abuse, there are laws protecting the minimum compensation you have to
offer to them. The workaround for that is not share options, but the black
market.

------
ville
"When will people get the message about grey text on light backgrounds?"

