28th November 2017.

Employees Should Have Share In Start-Ups

British and European entrepreneurs should use greater employee ownership to improve their chances of big business, says a leading investor.

Employees in the US are owning 20 per cent shares in late-stage start-ups, compared with only 10 per cent in Europe, according to a study by venture capital firm Index Ventures.

Index also reported that the majority of employee shares within European start-up companies are reserved for the most senior staff.

Index, which has invested in companies including Just Eat, Skype, Facebook and Funding Circle, claims that equity is simply not made available to lower-level employees in Europe. The venture capital firm contrasts this with America where two thirds of start-ups are owned by regular employees.

Offering new joiners free shares in a company often acts as an incentive because their value can rise substantially as the business grows and becomes more successful.

The British supermarket Waitrose for example, provides staff with shares within the business. This makes even the youngest and most inexperienced staff ‘partners’ rather than just employees, and means profitable years can lead to impressive bonuses for staff.

Neil Rimer, founding partner of Index Ventures, said that making shares available to more staff will also attract the best talent. Rimer insists that this is essential if European businesses are going to compete with American giants like Amazon, Facebook and Google.

Balderton, another venture capital firm, warned that the process could be “phenomenally complex”, but did admit it could encourage staff loyalty and a more motivated workforce.

“Equity is at the heart of the technology ecosystem,” Balderton said. “The shared belief among a company’s founders, investors and employees is that it will leverage technology to build a rapidly growing company that will create enormous value. It is only fair for that value to be shared among those who created it.”

A member of staff at Credit Protection Association agrees that employee ownership should be encouraged in Europe, and particularly in the UK. Such an incentive would allow employees to feel they are part of something bigger, and encourage more staff to get involved within the company. Start-ups in the UK are an integral part of this economy and anything that would aid their growth and success should be encouraged. 

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