Giving options in European startups

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.

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.

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...

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.

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