The Mews Blog > Options are seed investments: our approach to employee ownership
For a long time, as a Founder, I struggled what to think of options. For the first few years, while Mews struggled and ground out growth, I spent many sleepless nights worrying that any key person in the company would walk out and leave. Options, therefore, presented another reason for talented people remaining loyal the business.
It was also a way to sound cool in a Central European setting, and angle Mews to be more like Apple or Facebook (post ‘Social Network’). However, the realities of wanting to be a cool start-up with a fancy options plan where everyone becomes rich like the PayPal Mafia weren’t so simple. Setting up a company that way in the Czech Republic in 2014-15, was far from easy.
Why we changed our thinking about employee ownership
In the Czech Republic, there was no real precedent for an employee stock ownership plan (ESOP). At the very least, there was no common understanding for one, and our legal team was always worried that it would unnecessarily confer the ability to give someone the power to be a big nuisance to strategic decisions the company wanted to take.
We also worried that once granted, these options might cause complications when building the business. What would it mean for those who left the good ship Mews for greener pastures, but wanted to keep a memento? Our idea was that the team running Mews should also primarily be the team owning Mews. That we should be able to retain the economic benefits as well as hold the responsibility for good judgement.
Once we rolled into 2016, a few things changed. Firstly, we became a Dutch company, and the Dutch STAK model was a better and well-worn path – you can read more about its benefits here. Secondly, we became less worried about what someone would do with the shares after their vesting period. Our understanding of how to look at good leaver and bad leaver clauses was important, and we realized the key ingredient to a good ESOP was mutual trust. Third, we started to see that as Mews’ valuation was becoming real and tangible, we could use it as a cost-effective way to attract top talent for every part of our growth.
Lastly, we thought long and hard about the kind of company we would want people to say that they had been proud to have been at. Become an established name, raising money, and transforming the industry was worth nothing if we couldn’t tell our team that they were also owning a part of their success. Therefore, allowing people to own a chunk of that memory became a more important driver than any personal stake we’d have. In short, we realised that it wasn’t about us, our wealth and our ambition. We started to see that it would take a village to take us to the top.
Mews is in Europe’s top 1% for start-up employee ownership
Over the next funding rounds, therefore, our strategy was always to try and get the best valuation, but also to expand our options pool for Mews employees. Today, that sits at over 24%, 8% of which has vested and now is fully in control of those who deserve their shares. In our Series B funding, we ensured that every employee has stock or depositary receipts in Mews. This is unique as most companies stop at around 250 employees, with only senior hires and top talent receiving shares from then on. In the near future, when we go into our Series C round, we’ll once again be looking to add to our options pool, primarily for new strategic hires.
I’m proud to say that we’re in the top 1% of European start-ups in terms of the size of our ESOP. It’s a stat that fills me with great pride. For me, the reason for its importance is that it’s vital to realize that a knowledge-based company is only as strong as the people in it. When these people are engaged in a quest for hyper-growth, they need to feel that they really want to set the company up for geometric growth.
Given how unlikely this is, and what lofty ambitions we have (to create Europe’s first Trillion-dollar start-up), we can only succeed if we manage to have a spirit of rebirth every few years. Therefore, we’ve created a culture that rewards this and does not slide into the standard model of autocracy that you see elsewhere.
Democracy works in a similar way and that’s why it is such a powerful force for good – and we’re trying to broaden the base of our shareholding in the company so that we can attain these heights. This in turn can create new challenges, namely, that if options are expected, do team members still see them as rewards – and do they really take on the responsibilities of ownership?
The importance of option education – and balance
Similarly, we find that in Europe, shares and options are still esoteric topics for most employees, and it’s difficult to explain how to think about their value, especially when between funding rounds. For this reason, we’re collaborating on a tool for our employees with our legal partners, Ferro Legal, that allows every employee to see their shares’ valuation, consistent with their grants and methodologies on valuation, as well as it being something which works for all legal environments (and not just US-style share agreements for which tools exist).
In all, I believe that in Europe, it shouldn’t just be venture capitalists who push an agenda towards simplifying the landscape of options contracts. It’s on us as entrepreneurs to begin a conversation on how we can help educate, but also learn from models that evaluate the trade-offs between using options as effective motivation, whilst also not encouraging tenure for its own sake. The perfect options plan, for us, does not exist, but it’s been a fun exercise trying to figure out what exactly that could look like for Mews.
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