Benchmark survey of 1,200 founders, executives and employees reveals equity trends amid a market correction
A new report has revealed that amid a fundraising and valuation slowdown, tech companies are planning to double down on employee equity in 2023 to encourage employees to think like owners and weather the tough investment environment.
Ledgy, the equity management platform for scaling companies, surveyed 1,200 employees, executives and founders in the US, UK, France and Germany for ‘The State of Equity and Ownership 2023’.
Ledgy’s survey reveals that overall, almost two-thirds (64%) of founders are set to make their equity plans more generous in the coming year. Compared to last year, three times more founders spent “a lot of time” on employee equity when fundraising.
Compared to last year, fewer founders went out to market and successfully secured external investment. A majority of founders across the UK, US, France and Germany (51%) had not raised money from investors in the previous 12 months, compared to 43% in 2022. Mature markets seemingly gave companies more fundraising confidence, with more than half of companies in the UK and US raising money from external investors. By contrast, fewer than 40% of French and German companies said they had raised money in the past 12 months.
The proportion of a company’s equity set aside for employees makes a big difference to financial outcomes in the event of an exit. It is still rare in Europe for founders and investors to allocate more than 15% of the company to employees, but Ledgy reveals this picture is changing. One in every thirteen founders (7.6%) now allocates 20% or more of the company’s equity to employees: in Ledgy’s 2022 survey, only one in 25 companies (4%) was this progressive.
Uptake of tax-optimised share plans, which require in-depth discussion with tax authorities and greater overhead for finance and legal teams, is a key indicator of the relative equity maturity in different ecosystems. Although more mature tech markets in the US and UK are ahead of the developing hubs in France and Germany, the report paints a picture of rapid development: 33% of French companies are now using tax-optimised equity schemes to grant stakes to employees, almost on par with the UK (36%). Meanwhile, 43% of German founders who had raised money reported spending “a lot of time” discussing employee equity when fundraising, a huge leap forward from the 9% that said the same in 2022.
Yoko Spirig, co-founder and CEO of Ledgy, commented: “Despite the tech ecosystem coming back down to earth over the past year, there is still an enormous amount of innovation happening and equity trends are moving in the right direction. Tech firms are doubling down on equity because they recognise that incentivising talent with a stake in the business is one of the best levers to align everyone behind the mission and vision through tougher times.
“Equity in Europe used to be a case of maybe getting a decent chunk of share options in a London startup, and not much on offer elsewhere. Our data shows that this is no longer the case. Although there is more to do, we are now seeing startups in markets like France and Germany establishing progressive equity plans that could give employees transformative ownership in leading companies.
“But Europe is still lagging behind the United States on critical metrics like how widely equity is distributed across the team, and how much of the company’s equity is allocated to employees. We have seen some positive grassroots campaigns trying to change things in Europe, but more government support and cross-jurisdiction standardization of share option plans is needed to make equity in Europe as exciting and well-understood as equity in the US.
“Taking the temperature of equity and ownership across four important markets has been a fascinating exercise and we are already excited to see how the tech sector evolves in the next 12 months.”
