October 13, 2023

European founders are backtracking on employee equity. It’s not a good idea

Data shows that employee equity grants are down across Europe, affecting startups’ ability to attract top talent

As the fundraising environment cools down, European startups are becoming less generous with employee equity — and it’s likely to cost them the best talent.

Data pulled together for Sifted by Swiss equity management platform Ledgy, which counts 3,500 customers across Europe, shows that total new equity grants on the continent in September 2023 were 25% lower than at the same time last year. This means that companies gave away 25% less in fresh ownership stakes to new and existing employees than last year. 

In both France and the UK, new equity grants were down by over 40% compared to September 2022 — with the caveat that Ledgy’s customer base in France is smaller than in the UK.


Less equity for employees

Giving startup employees a small portion of the company, known as equity, means that workers could be in for big returns if the business is successful.

It is also a way to attract and motivate new recruits for startups that are often cash-strapped and cannot compete with the salaries offered by bigger corporations.

With each funding round comes the opportunity to increase the pool of stock options available to existing employees and new starters — and Ledgy found that new funding rounds across Europe were 11% lower year-on-year. So it is only logical that as funds get scarcer, so does equity.

“Equity has already been attributed to many employees, and there is no more room for new ones. Founders were banking on the next funding round to add people and reincentivise workers,” says Joy Sioufi, partner at GP Bullhound. “And they are very often at an impasse, because they can’t raise again.”

Early-stage startups are likely to be disproportionately affected. Ledgy’s data shows that in the UK, for example, EMI (Enterprise Management Incentives) grants — an equity scheme designed for companies with fewer than 250 employees — are down 57% year-on-year.

Companies are hiring less and investors are cautious of dilution

But there are a few other reasons why businesses may be offering less stock options to their employees at the moment. 

Companies may simply be hiring less, meaning fewer equity grants are offered to new joiners. “But this isn’t necessarily the whole picture,” says Ledgy’s cofounder Yoko Spirig.

Spirig says that as the “growth at all cost” mantra of the past few years switches to prioritising profitability, more young startups might be choosing to bootstrap, restricting the equity grants that can be awarded early on.

Meanwhile, VCs are becoming increasingly nervous about portfolio performance. Spirig says they are more likely to advise against further dilution of their own stake in the business, which means encouraging founders to offer fewer new shares to employees.

And another factor, according to Spirig, is that in a market that is less candidate-driven than for the past two years, there is less incentive for employers to offer equity for new hires.


“Although many companies are having to economise in these times, pulling back on equity grants risks damaging long-term competitiveness,” says Spirig.

But for some companies, cutting back on employee equity is not an option. Deeptech startups, in particular, need workers with strong technical know-how — and key to securing that top talent is the promise to benefit from the startup’s future success. 

“The real incentive for a startup like us is equity. We are focusing on attracting talent mostly thanks to that,” says Stanislas Polu, cofounder of Paris-based AI startup Dust.

Europe’s equity problem

Europe has historically lagged behind when it comes to employee ownership, with the typical share of equity given to workers stagnating around 10% of stock options — half as much as in the US.

This has been slowly changing. The share of stock options granted to European scaleup employees has risen to 16% in 2023 from 12% five years ago, according to research from Index Ventures.

The picture is not the same across all countries because regulation and tax frameworks vary across the continent. Index’s report shows that Germany, for example, has Europe’s worst set-up for employee equity. 

Ledgy’s data, however, shows that total new equity grants in the DACH region were up 32% in September 2023 compared to the previous year. 

This might be due to increasing recognition in Germany that options pools dedicated to employees have to increase. Last summer, for instance, economics minister Robert Habeck pledged to reform German legislation around stock options.

Daphné Leprince-Ringuet

Daphné Leprince-Ringuet is a reporter for Sifted based in Paris and covering French tech. You can find her on X and LinkedIn