European startups applaud Commission plan to rethink stock options

Natasha Lomas

Startups have welcomed proposals from the European Commission aimed at cutting red tape and shrinking cross-border barriers for small businesses as part of a new EU industrial strategy plan with a twin focus on digital and green transitions unveiled today.

Among the package of measures being proposed by the European Union's executive body are for Member States to sign up to a "Startup Nations Standard" -- which would aim to promote best practices to support startups and scale-ups, such as one-stop shops, favourable employee stock-options arrangements and visa processing to reduce cross-border friction for entrepreneurs starting and growing businesses in the bloc.

In recent years, European startups have organized to campaign for reforms to rules around stock options --with 30 CEOs from homegrown startups, including TransferWise, GetYourGuide, Revolut, Delivery Hero, TypeForm and Supercell (to name a few) signing an open letter to policymakers two years ago calling for legislators to fix what they dubbed "the patchy, inconsistent and often punitive rules that govern employee ownership."

The effort appears to have made a dent in the EU policymaking universe. Both regulatory and practical barriers are now in the Commission's sights, with it proposing a joint task force to work on sanding down business bumps.

It also today reiterated a perennial warning against Member States "goldplating" pan-EU rules by adding their own conditions on top. 

"The Single Market is our proudest achievement -- yet 70% of businesses report that they do not find it is sufficiently integrated," said EVP Margrethe Vestager, laying out an industrial strategy package with a big focus on smaller companies, including those with big ambitions to scale. "Across Europe barriers are still preventing startups from growing into European businesses and our report is identifying those barriers and we also then address them in the Single Market enforcement action plan."

In a letter responding to the Commission's plan for an EU Startup Nations Standard, 14 European startup founders (listed below) and a number of European startup associations welcomed the proposal -- urging EU Member States to get behind it.

"By making it easier to start a business, expand across borders and attract top talent, this new Standard will help to level the playing field with powerful global tech hubs in the US and China," the tech CEOs and startup advocacy organizations wrote. "We applaud the EU’s ambition of seeking a pan-European solution to address the needs of startups. We are also encouraged that the Commission has specifically called out the treatment of stock options as one of the key issues.

"As highlighted by more than 500 leading European entrepreneurs who joined the Not Optional campaign, the inability of startups to use stock options effectively to attract and retain talent is a major bottleneck to the growth of startups in Europe."

"The Commission’s proposals will be a major step towards unleashing the full entrepreneurial firepower of Europe – but only if they are adopted and implemented by all Member States," they added. "That’s why we are today calling on all Member States to sign up to the EU Startup Nations Standard, including a commitment to increase the attractiveness of employee ownership schemes."

Here's the list of startup CEOs signing the letter:

  • Christian Reber, CEO & Founder, Pitch
  • Felix Van de Maele, CEO & Founder, Collibra
  • Jean-Charles Samuelian, CEO & Founder, Alan
  • Johannes Reck, CEO & Co-Founder of GetYourGuide
  • Johannes Schildt, CEO & Founder, KRY / LIVI
  • John Collison, Co-Founder and President, Stripe
  • Juan de Antonio, CEO & Co-Founder, Cabify
  • Markus Villig, CEO & Founder, Bolt
  • Miki Kuusi, CEO & Co-Founder, Wolt
  • Nicolas Brusson, CEO & Co-Founder, BlaBlaCar
  • Peter Mühlmann, CEO & Founder, Trustpilot
  • Sebastian Siemiatkowski, CEO & Founder, Klarna
  • Taavet Hinrikus, Founder & Chairman, TransferWise
  • Tamaz Georgadze, CEO & Founder, Raisin

Also welcoming the stock option proposals, Martin Mignot, a partner at Index Ventures -- another backer of the Not Optional campaign -- said: "The biggest challenge facing startups today is recruiting and retaining top talent. That's why we are pleased that the EU Startup Nations Standard addresses stock options, making it easier for startups to allow employees to share in their success."

"We are pleased to see the European Commission recognise the contribution that startups make to Europe and its citizens, and pursue a pan-European policy initiative to support this growing sector," he added in a statement. "For too long, the focus in Europe has been on taming US tech giants. Today's announcement confirms Europe's ambition to create its own champions."

EU startup advocacy member association, Allied for Startups, is another signatory to the letter. And in an additional response, it broadly welcomed the Commission's SME strategy -- while pressing for a strong focus on startups as independent actors in the implementation of the strategy, rather than as a sub-category of SMEs.

"The talent-focus of the proposed Startup Nation Standard has significant potential for startup ecosystems, since access to talent is still a bottleneck for startups in Europe,” said Benedikt Blomeyer, the lobby group's director of EU policy, in a statement.

"Through the SME strategy, we are pleased to see concrete measures such as better startup visas and improved employee stock options on the table. Allied for Startups has repeatedly called for both measures over the past years."

"Unlike SMEs, startups can only succeed at scale," he added. "They are global from day one and aim to grow big and fast. Specific measures that work for SMES, for instance a regulatory exemption, might not work for startups. On the contrary, it could incentivise a startup to stay small. To account for these differences, the European Commission should consider a startup strategy that focuses on scalability, complementing the SME strategy.”

Allied for Startups also welcomed the Commission's general goal of reducing the administrative and regulatory burden for startups within the Single Market -- saying the consideration of regulatory sandboxes as part of the support toolkit is "potentially valuable for startups, who build innovative products and services."

The Commission is also looking to support SMEs to go public in Europe -- announcing an SME Initial Public Offerings (IPOs) Fund under the InvestEU SME window, which will aim to make IPOs more accessible to local small businesses.

Another push aims to reduce late payments for SMEs, with the Commission noting today that one in four regional small businesses go bankrupt as a result of not being paid on time.

It also said it wants to stimulate investment in women-led companies and funds to "empower female entrepreneurship." (Notably all the signatories on the aforementioned letter are male.)

Industrial to digital transformation

More broadly, the Commission's new industrial strategy intends to underpin core EU policy priorities for the next five years -- which include a focus on driving the digitization of legacy industries and simultaneous retooling to transition to a carbon neutral economy under the pan-EU Green Deal.

“Europe has the strongest industry in the world. Our companies -- big and small -- provide us with jobs, prosperity and strategic autonomy. Managing the green and digital transitions and avoiding external dependencies in a new geopolitical context requires radical change -- and it needs to start now," said Thierry Breton, commissioner for internal market, in a statement today.

During a press briefing, Vestager emphasized the Commission's view that new and more inclusive working methods are needed to deliver on the planned transformation.

"The twin digital and green transitions are posing both opportunities and challenges for the industry in general and for small and medium sized businesses in particular. Business models are changing. All across Europe companies are confronted with consumers' decreasing trust and increasing demand for transparency," she said. "The world around us is also changing... Today global competition, trade disputes, the return of protectionism -- I think that creates a shared feeling of uncertainty.

"This is challenging Europe's industry as it sets out to meet the twin transitions. Fortunately, the European industry is coming to this reality from a strong position. Our new strategy is building on Europe's strength and on our values."

On the proposals to shift to "inclusive" working methods, Vestager said the aim is "to work much closer with small and large companies, Member States, researchers, academia, social partners and other EU institutions."

To that end, the Commission is proposing a new industrial forum to enable closer working with such stakeholders that it aims to have set up by September.

It also wants to work on identifying a number of industrial ecosystems -- which Vestager said "may require a bespoke approach," in terms of policy support.

At the press briefing, Breton suggested there could be between 15 and 20 such industrial ecosystems.

"We don't want to leave anybody out," he said. "This is an industrial strategy but we all know that underpinning this there are large corporations but many, many, many small ones too and we have to bring these on board. If we don't have the big and the small we won't have a dynamic, innovative, living sector.

"A lot of companies do this among themselves already, locally in fact, but we do hope it is going to be done in an even more horizontal manner across the EU and within the internal market," he added.

Skills is another focus for the SME strategy -- with the Commission saying it will expand Digital Innovation Hubs to every region in Europe to help small businesses plug in cutting edge tech, with expanded options for volunteering and training on digital technologies.

Helping SMEs find the skills they need to shift to sustainable ways of working is another stated aim.

The Commission has published a Q&A on the industrial strategy here.

Last month the executive body also set out proposals aimed at encouraging industrial data sharing and reuse, along with proposals for regulating high-risk uses of artificial intelligence.

Europe sets out plan to boost data reuse and regulate ‘high risk’ AIs


A further major piece of EU digital policy due later this year is the forthcoming Digital Services Act -- which is slated to address platform liabilities and responsibilities, including toward smaller businesses that rely on them as a marketplace.