Equidam partner Share Council streamlines the process for startups and SMEs to implement Employee Stock Ownership Plans (ESOPs), overcoming traditional barriers such as complexity, cost, and lack of awareness. By simplifying legal and notarial processes and collaborating with Equidam for efficient share valuations, Share Council facilitates easier adoption of ESOPs, empowering employees with ownership stakes and aligning their interests with the company’s success.

We spoke with Quintus Willemse, Founder & CEO of Share Council, about the crucial impact of employee equity in the startup ecosystem and address the challenges of ESOP adoption in Europe versus the US. Quintus elaborates on the barriers to implementing ESOPs and how Share Council simplifies this process for startups and SMEs.

“One of the biggest roadblocks in making an employee truly co-owner is the valuation of the share that the employee buys. It might seem such a small step but has unexpected heavy consequences.”

Why is employee equity so important to the development of startup ecosystems?

Employee equity is crucial to the development of startup ecosystems for several reasons. First and foremost, it acts as a powerful incentive for attracting and retaining top talent. Startups often struggle to compete with larger, established companies in terms of salary and benefits, making it essential to offer potential employees an ownership stake in the company through equity. This aligns their interests with the long-term success of the startup, fostering a sense of ownership and dedication.

Secondly, equity provides a means for startups to conserve cash flow in their early stages. Cash is scarce for startups, and offering equity in lieu of high salaries allows them to invest more resources into product development, marketing, and growth strategies.

Furthermore, employee equity creates a culture of collaboration and innovation within the startup. When employees have a stake in the company’s success, they are more motivated to contribute ideas, work collaboratively, and take on additional responsibilities.

Equity can also facilitate partnerships and collaborations, as external stakeholders see employees’ commitment and align their interests with the startup’s success.

In summary, employee equity is vital for attracting talent, preserving cash flow, fostering a collaborative culture, and building a strong network of supporters around the startup. It incentivizes employees to go above and beyond, driving the growth and sustainability of the startup ecosystem.

What is the status of ESOP adoption across Europe today, and how does it compare to the US?

The ESOP scheme is an important way for the US economy to provide bank financing for equity of SMEs. Some 10 000 ESOP companies in the US have some 14 million employee-owners with total assets of more than USD 1 300 billion. In Europe, there are only 300 similar mostly employee-owned companies, with around 300 000 employee-owners owning around €13 billion in 2017.

The effectiveness of the ESOP scheme in the US is mainly due to strong tax incentives. On the one hand, capital gains tax exemptions encourage family owners to sell to employees; on the other, tax exemptions on profits facilitate the whole scheme. On the contrary, in Europe, the unfamiliarity of the ESOP scheme is a barrier.

Therefore, employee share ownership in the US contributes much more to entrepreneurial and employment dynamics and to the soundness and stability of capital markets than in Europe. It is well known that employee shareholders tend to be stable investors, acting for the long term as industrialists rather than just financial investors. They are the closest link between finance and the real economy and the best embodiment of democratisation of capital ownership. The underdevelopment of employee ownership also hinders Europe in terms of productivity, growth and job creation, as well as pensions or business transfers, especially for SMEs.

What are the typical / traditional barriers to ESOP adoption?

The typical barriers to ESOP adoption can be summarized in three key points:

  • Complexity and Cost: Implementing an ESOP can be a complex and costly process for companies. Establishing a trust, navigating legal and tax regulations, and ensuring compliance can be daunting and resource-intensive. Small and medium-sized enterprises (SMEs) may find it particularly challenging to bear the initial expenses and ongoing administrative burdens.
  • Lack of Awareness and Education: Many businesses, especially startups and SMEs, may not be aware of the benefits and mechanics of ESOPs. Lack of understanding about how ESOPs work and the potential advantages they offer can deter companies from considering this employee ownership model as a viable option.
  • Risk and Control Concerns: Some business owners may be hesitant to adopt ESOPs due to concerns about diluting their ownership and losing control of the company. Sharing equity with employees might raise worries about decision-making, potential conflicts, and impact on the company’s direction.

Addressing these barriers requires outreach and education to help businesses understand the long-term benefits of ESOPs, simplifying the implementation process, and demonstrating how employee ownership can align interests and drive company success.

How does Share Council make this easier for founders to address?

Share Council helps find the best way for your company to get employees involved. They then set up a plan and set up the platform. In the background, we help with all notarial matters, such as the possible set-up of a foundation. Finally, you can always contact us if you want to change something in your participation plan or if you need support with something.

What part does Equidam play in your mission?

One of the biggest roadblocks in making an employee truly co-owner is the valuation of the share that the employee buys. It might seem such a small step but has unexpected heavy consequences. Doing a good valuation takes a lot of time and energy, hence it slows down the implementation of employee ownership tremendously. Thanks to Equidam we could shorten the onboarding process to just half the time (yes, that’s how intensive it is) and we could drive down the price to only 10% of what it cost before. Anyone can see that this is an impeccable improvement which helps us to serve a bigger portion of the SME market and hence immediately plays a pivotal role in following our mission.