It sometimes seems that in the Valley that everyone is an angel investor and the streets are paved with gold. Building a startup there is, of course, still an enormously hard thing to do, but there are lots that have made it big enough to create scores of millionaires through their option schemes. Many of those newly minted millionaires go on to invest in startups themselves, which fuels the ecosystem and makes them role models for the next generation of startup employees that are hoping for a big payday from their options. That’s great for the startups because option holders are often happy to work for lower salaries.
Here in the UK the ecosystem is young and hence not yet so well developed. The good news is that just about every startup gives options to it’s employees these days, and many of our options schemes are similar to those in the US. However, my experience across over 100 portfolio companies and my colleagues experience in hiring getting on for 1,000 people is that employees often don’t understand or value those options very highly.
I think the difference comes because on this side of the pond we haven’t yet seen enough companies having enough success that their options schemes have made large numbers of people wealthy. Most people don’t know anyone who has made it big through options and that makes it hard to see value in their options.
The other factor at play is that startups here in London are often competing with banks who are offering large bonuses in the first year. That cash promise is more real and present than an option scheme.
The good news is that the situation is improving. Startup ecosystems take time to build and perceptions of options is one aspect of many that has been headed in the right direction here for sometime now. Crucially, billion dollar exits are coming through at an increasing rate – this year we have already seen King.com, Just-eat, Zoopla and Appliances Online enjoy £1bn + IPOs, and that’s just a few of the big names. Once these businesses and others come out of their lock-up periods many of their option holders will cash in, more people will know somebody whose options have worked for them, and startup employees will place more value on those options. We shouldn’t expect big overnight changes, but continuous improvement at an accelerating rate is very much on the cards.