Ledgy, the equity management platform, released its annual State of Equity report earlier this year. The report found that European startups in general, and in France in particular, are making greater use of an employee benefit that has been a cornerstone of Silicon Valley's success for decades.
In Europe, the UK still leads as more employees get equity and equity pools are bigger. But startups in France and Germany are gaining ground.
Back in 2000, the French government reformed financial rules to encourage greater use of stock options. In France, the BSPCE option grant (Bons de Souscription de Parts de Créateur d'Entreprise) has become the main tool for awarding employee equity.
Still, France has plenty of work to do. The report found that 1 in 4 French companies gives less than 15% of all equity to employees and that only 1 in 3 are using a tax-optimized share plan.
To discuss the use of options, we spoke with Yoko Spirig, Ledgy’s co-founder and CEO. She co-founded the company with Ben Brandt and Timo Horstschaefer, who met while studying physics together at ETH Zürich.
Q: What is the mission of Ledgy?
YS: We started Ledgy six years ago. And the reason we started originally was because every startup around us was using Excel to manage equity, which comes with a number of problems. We saw back then we could solve this problem with our software, but also the fact that it will be a growing problem as the ecosystem in Europe grows in terms of the number of startups. So, the culture of getting equity is growing. But when we started, there was no way to manage equity and to give transparency to employees.
Q: How does Ledgy solve this problem?
YS: What we really help with is two main things. On one hand, when you have a lot of owners, you cannot work with Excel anymore. Especially, when we have a lot of owners in many jurisdictions, which is very particular to Europe, as opposed to the US. Things become very, very complex, very quickly. And so what Ledgy does is it really helps you automate everything around equity, especially if it's in multiple jurisdictions. The second part is that it's really a platform that connects employees and investors and founders. It really gives visibility to employees around what it means to own equity, which is a huge need in the market. Still, today in Europe, it's not very tangible.
Q: How would you characterize where Europe is in terms of using options compared to the US?
YS: We can really see that there is change. So just to give you an example, in our equity report of 2021, on average companies gave out between 5% and 10% of their company to employees. And that has really grown in our latest report to roughly 15%.
Q: What are the major differences in the use of equity between, France, the UK, and Germany?
YS: The UK is still the most mature ecosystem. That is also where companies are the most generous in giving equity. Between France and Germany, the numbers are quite similar, but France is a bit ahead of Germany, according to our data.
Q: How has the use of stock options evolved in France?
YS: I think it's really been an evolution across all ecosystems. I think that that observation we can make is that especially in France, there's so much push from the government for startups in general. And I think we see that reflected as well not only in funding rounds but also in the culture of getting equity.
Q: Has there been progress in France or across Europe in reforming the rules around the use of stock options to encourage more companies to award them to employees?
YS: I would say that remains one of the biggest pain points. First of all, I think governments in general have made progress, especially in the UK, and in France, in terms of making the taxation better for employees. So that makes it more attractive to give out options to employees in those markets. Germany is still lagging behind, but there is some movement. And I would say secondly, in France especially, there are still a number of pain points around when employees become real shareholders. There are some clauses that mean that founders have to approve every single change in the company’s bylaws. Therefore, a lot of our French customers rely on Ledgy to really automate that process whenever there is a change.
And I would say the last point, particularly for Germany, is the ease of getting stock options. In Germany, it’s still extremely hard both administratively and from a tech perspective to give out stock options. So companies give fake stock options in the sense that they give out phantom stock options. If there’s an IPO, you cannot hold on to that stock, you're not a real owner of the company. It’s better than nothing. But there is a big milestone that Germany still needs to cross. [Note: Spirig is referring to the common use of Virtual Employee Stock Option Programs in Germany, which is a hack that founders created to get around tough rules.]
So, I would say a lot of things to do on the policy front for everyone.
Q: Do you have much insight into the acquisition, the M&A market in terms of companies on your platform?
YS: We definitely have more acquisitions, unfortunately on the smaller end of the spectrum. Also, some companies, some startups, are going out of business. That's definitely the reality.