“We are so proud of
our trade surplus and our
automobile industry,
but we have fallen behind in the
digital economy. This
is where value and growth
will come from”options to its employees. Located in Prenzlauer Berg, a Berlin
neighborhood of funky cafes and old Soviet-style apartment build-
ings, Raisin runs an online “deposit marketplace” that matches
European savers with banks offering the best interest rates. Backed
by Goldman Sachs Group Inc. and PayPal, it’s invested €16 billion
($17.7 billion) in assets.
Frank Freund, Raisin’s co-founder and chief financial officer,
isn’t wild about requirements that date to a bygone era. Whenever
Raisin grants shares, a notary must literally read the lengthy com-
pensation agreement aloud to both the employee and Freund at a
hearing that can take up to 90 minutes. Still, Freund believes the
company made the right call. “When you have participation in the
company’s performance and growth, it makes a big difference,”
he says. “It would be great if significantly more companies would
follow our example in Germany.”SCOTT CHACON will take a pass on that. Chacon is an American
entrepreneur who co-founded the software development site GitHub
Inc. He’s been spending time in Berlin with his latest venture, an
online language-tutoring service called Chatterbug Inc. Following
a panel discussion, he mingles with local techies over beers in a leafy
courtyard outside a VC firm.
Amid the bonhomie, he says Chatterbug chose to base itself
in San Francisco and Berlin to tap into the German capital’s diverse
expatriate pool. It offered employees a choice of U.S.-style options
or German-style virtual shares. But ensuring the different pro-
grams were equitable was impossible. Chatterbug now offers new
employees restricted stock units that aren’t pegged to a strike
price (as options are) and are taxed as income if they’re cashed in
during a sale of the company.
Standing alongside Chacon, Anne Leuschner, the
company’s COO, chimes in. She says Chatterbug’s compensation
fudge isn’t ideal, but it’ll do for now. “I wish we had the same
system as the U.S.,” she says. “But they don’t want us to get rich
in Germany.” —With Birgit Jennenis where value and growth will come from in the future.”
It won’t be easy for Stark-Watzinger to persuade parties in
Germany’s governing coalition to embrace legislation that might
be seen as favoring workers in the relatively well-off tech sector.
Germany has been far less comfortable than the U.S. and the U.K.
about carving out exceptions in its tax system for specific sectors,
even to stimulate innovation, says Michael Mandel, an economist
at the Progressive Policy Institute in Washington who has studied
the issue. It wasn’t until this year that the German government
proposed a tax break for research and development investments
across industries, a common policy in many Western countries.
Whenever the issue of tax credits has come up in the
Bundestag, lawmakers have tended to question whether lower
revenue will undermine support for social services—a political
third rail in a nation that provides free tuition at public universities
and universal health care.
Mandel says that just because Washington is willing to bet
that forgoing tax revenue now will result in bigger inflows later,
that doesn’t mean Berlin should. “Germany has a very successful
industrial system, so why should they break something that’s
working?” he says. “And while German leaders would love to
have more unicorns, they might want to develop them their way,
not the Silicon Valley way.”
Even so, there’s little doubt that stock options have fueled
wealth and innovation in the U.S. Companies such as PayPal Hold-
ings Inc., the online payments pioneer, haven’t just made their
founders wildly rich; members of the so-called PayPal mafia like
Elon Musk, Peter Thiel, and Reid Hoffman went on to start ventures
that minted fortunes for rank-and-file employees who can then start
their own companies and begin the cycle anew.
Index’s Mignot calls this the flywheel effect. The flywheel
isn’t nonexistent in Europe: The 2018 IPO of Adyen, a Dutch digital
payments processing company, made its top brass billionaires. Yet
reforming options rules across the EU would help make creating
such flywheels the norm instead of the exception, says Magnus
Henrekson, the director of the Research Institute of Industrial
Economics in Stockholm. At the top of the reform list is making
sure beneficiaries aren’t hit with taxes until gains are realized.
GetYourGuide’s Reck, for one, is relieved the issue is finally
on the agenda. In many respects, his company looks like a classic
Valley performer. It’s backed by SoftBank Vision Fund, and in
September it moved its headquarters into a renovated electrical
substation that’s a model of post-industrial hipness, with exposed
red brick walls, cast-iron beams, and fridges stocked with high-
caffeine Club-Mate drinks.
Even though Reck was determined to add the pièce de
résistance—options—he gave up after realizing that the upfront
tax bill would empty workers’ pocketbooks. So he implemented
ersatz shares that are essentially cash awards tied to GetYour-
Guide’s valuation.
Those payouts are taxed as income, but only when they’re
redeemed, and there’s no capital-gains tax. But GetYourGuide,
which isn’t profitable yet, must reserve cash to cover the outlays.
“This has massive disadvantages for the company,” says Reck. “We
have a huge liability on our balance sheet toward employees, which
is obviously weird. And in an IPO scenario, this is something that
you have to explain to investors, and that’s not great.”
Raisin, another startup, did bite the bullet, granting stock Robinson covers wealth in London.
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