 Hi everyone, I'm Katrina from index ventures, and I'm so happy to see you all here I think the builder studio is a great concept and So I'm really looking forward to tell you a little bit more about how we at index think about rewarding talent over the next 30 minutes and so index ventures and has been around for 25 years and just as long we've been really thinking about Compensation and how our portfolio companies should think about compensation and rewarding talent and so 10 years ago Dominic our VP talent of insa and of talent and insight who was actually supposed to be here today But unfortunately couldn't make it has started to put together a database and benchmarking on employee options and how to reward employees and And we've been helping our portfolio companies on this ever since and then five years ago actually decided to open-source it so because we wanted everyone in the European and also frankly in the global ecosystem to benefit on some of the benchmarks that we've put together and So over the next 30 minutes I just want to walk you through a little bit of the general concepts how we've been thinking about it and Hopefully you can take away something for your own company Briefly about index so we were started 25 years ago. We're a global fund headquartered in San Francisco in London and Our multi-stage fund investing from a million to a hundred million euros in ticket size So from the early stage to the growth stage Thematically we are very generalists So we've been investing both in consumer and B2B enterprise companies back in companies such as Personia in Germany Roblox add yen super cell here in Finland Figma and Robin Hood in their seed rounds and Continue to do so and as part of the launch of our original seed fund earlier this year. We've revised our Option guidance program to really look at how should you think about it at the early and the seed stage? Already and that's what I want to take you through today So what we've seen is there has been a tremendous change in the fundraising landscape over the last couple of years, right? And that's not to say that fundraising is easy But what we've seen is with the influx of capital what's really become a bottleneck is human capital And so there's like many dimensions to think through this is like How do you attract talent when you only have limited amounts to pay? How do you retain talent with other companies have deeper pockets? How do you motivate talent if you can maybe not deliver exactly the same benefits as others? And how do you align talent when people come from all different avenues and geographies and We've really seen two avenues to do that So the first one Nina has already talked about just now and that's mission and culture and that's something that you as founders are thinking through every day and that's really your superpower because That's what that's why people are frankly joining you right like they want to like work on disruptive ideas They want to have an impact. They want to follow through on the mission that you're building And so that's something that you're thinking through every day anyways already but the other component of Superpower that you have is the financial upside that you can provide your employees And so even if you maybe can't pay the best salaries on the market You have employee options to let them participate in your journey and hopefully provide them upside in the future and so that's What you can do through employee option plans and I'm gonna walk you through a little bit kind of the tenants that we've seen there and What's been really interesting is if you compare the Europe Europe and the US and employee options It's been striking to see quite a big gap Historically, so the US has usually started out with an average of 13 percent set aside for employees Whereas Europe has historically started around 10 and then an interesting curve that you've seen is that over time The US companies have actually increased their employee option pools. So as they raise more funding runs They didn't just top it up to make up for a dilution that they've been incurring But they really increased the option pool to give more Shared to their employees and so at kind of a late series D round They were roughly at around 22 percent that was allocated to employees Whereas historically five years ago in Europe. We've seen that they were around half So what happened in Europe was we started with around 10 percent of an employee option pool And then rather than increasing it it stayed flat and it was literally just topped up to account for a dilution And so when we crunched the data again this year, what's been really great to see is this that there's been a tremendous shift more to the US model where European companies still start around the same Entry point around ten percent, but then have also adopted that model that they increase their option pool over time Which in our view has been really critical Now you're gonna ask why is there still a gap to Europe? But why have we also come closer to close it? And there's really four avenues that we've seen that have made an impact here the first is government policy So the UK and the Baltics and also France have actually made an Amazing progress when it comes to how they tax employee options and employee Incentivization programs and so they're they've like in the Baltics in the UK and in France we actually now have better standards than we have in the US and On the other hand though and most of the other European countries There's still quite a lot of room for progress and we continue lobbying for that actually and I'm gonna tell you how can you? Can help us with that in a second, but we Index actually created this note not optional campaign where we've put together benchmarks that and best practices to promote These programs and favorable legislation with countries that haven't made that change so far But with kind of that like unfavorable regulation that still produces part of the gap Secondly, we're still working all together. I think on a mindset shift So I think investors if they've been around for a long time They've seen the value of incentivizing employees and bringing and how core that has been to bringing key talent early on and What we've seen is that now also with founders there's been a shift and this is not to pick on you in the audience I'm sure this is top of mind for you already But I think it's a hard trade-off when you know that like maybe five percent of an additional option pool will Like dilute you and like your financial upside in the company And what I just want to encourage you all is that when we had index ventures look at early-stage companies the almost most important thing next to you as founders is your ability to hire and so when we back early-stage companies one of the key success factor that we've been seeing is like what's the caliber of talent that you've been able to attract early on and So I just want to encourage you to in your mindset be open and generous to pay a little bit more in terms of Employee options when there's people that you really want to bring in because it will make a difference Not only in the success in your company, but potentially also in your fundraising success Thirdly, we've we've already seen a change in risk appetite as you all know for sure is that often you need to walk Employers really carefully through what does employee options that even mean what does that mean financially? What why should you choose that as a component next to your salary and what's been very interesting to see actually is that? Where there's been more positive outcomes. We've seen more appetite to be rewarded in Employee options and so for example in the UK where we've seen the most number of successful exits The there's been more of an appeal of employee options because I think there just needs to be more successful examples that This is worth something and this is not just something to decrease your salary But this is this means something right and so there also I'd encourage you all in the audience to keep on walking through your Employees what that could actually mean what does that mean at different valuations and I'm going to show you an example in a second And then lastly, I think there is also just a lack of data And so when you don't know what the baseline is and your employees don't know what the baseline is then It's also hard to find the right setup and with kind of open sourcing all of our benchmarking in data We hope that we were able to contribute a little bit to that Now most of you or many of you might be early-stage founders And so you have the opportunity to really right-size your ease up and you have the opportunity to set it up right? From the get-go in a correct way and so what we recommend you there So the gray line you see kind of how it used to be in Europe in 2016 the red and the black line are what we recommend You today and there's really two things that I want you to take away from that first Ideally already start higher than the 10% we've seen that Technical companies might even want to start as high as 15% because as you know key technical talent is so hard to find So you want to set apart a little bit more equity to bring in that key talent and then be ready to increase it Over time rather than having it stay flat so that ideally kind of I mean at a late stage Where you might already be thinking about an IPO your employees own around 20% of the company What I would also mention next to kind of that difference between more like technically oriented companies versus More kind of business model innovation oriented companies is that if you're a solo founder We've seen that it's helpful if you increase your option pool even a little bit further roughly by 2.5 percent To make up for kind of that you can bring in even more key talent into this So I mentioned it already But if you want to play around with it and think about what's the best strategy then you can go actually online and look at our option plan where you really per stage per Profile per geography per business model can get Recommendations around kind of what salary might like might be the average what option plan might be the right one to pick for and so I'd really encourage you to play around with it It's comprehensive data from all across the world that we've been trying to put in the most ux friendly format possible But I've brought a little example With me today to just walk you through how you can think around that so in that quadrant You can see we usually tend to calculate Option grants as a percentage of the annual salary Which for example say that if you have a senior attack person that you want to bring in You might pay them around on average a hundred twenty or a hundred twenty five thousand euros And we've seen that then for example an average for that is to give them another eighty five percent of their annual salary Option grants which would roughly translate into a hundred thousand euros And so that's the broad concept like how we've been thinking around that now Again, there's like a couple of points that you want to look at first of all that It depends again on how strong your technical DNA is and if there's really specific talent say for example Also in crypto or so you might want to increase that a little further to get them into your company but also we've been seeing a risk premium for like the first one two three hires by Them joining you so early. They might ask for being rewarded for that in I mean additional option grants from a percentage perspective and so you see kind of that the more senior that talent gets also the like Heavier that option component should be which naturally makes sense as they like really should share kind of in The willingness to drive you to success Then kind of how that would look like potentially at post seed So we've calculated this now really for the early stage is say you've made 14 hires and first and I should actually say one We've seen that on average You would give away around seven percent of your cap table to early stage employees post the seed round so that say like if you have a average valuation of 18 million a 16 million post post your seed round that would translate and roughly at 1.1 million in euros and You see kind of how that's been allocated and that there is like a heavy kind of Weighing towards early stage hires and technical hires What that you then want to do next and again, that's something that you can find online But is to help them think through what that actually means now you've Allocates it around a million euros in value pre seed or at seed stage to your early stage employees But what does that actually mean? And so when you then help them calculate it through Including dilution you can see that for example for that senior technical hire that we were speaking about you gave them a hundred thousand euros in stock options now if you reach that One billion dollar in valuation that suddenly translates into 3.6 million of value for that employee alone right and I think if you help them Think through that and help them paint that future picture and what like you're all striving towards that can be Immensely powerful and so whenever you discuss employee options with your employees I'd really encourage you to map that out and tell them hey look This is what this means and this is like what we're trying to get do and that it will be really really meaningful which in turn then hopefully it helps you to You know make the the value of employee options really clear and make that a strong component next to the salary So then kind of now we've talked through how the ease up should look like and what it should roughly amount to we always encourage you to set it up as early as possible Because the advantage of it being that there's no room for misunderstanding It's a lever for you to bring in key talent early because it already exists and there are no insecurities around it and It's frankly also usually easy there in Europe to set it up right from the get-go When you can still take like a template and you have like a clean setup, etc But we do understand that that's not always possible so when there is no way for you to set it up at the precede stage and Or when if it's like a monetary topic Then there is a couple of aspects that I would like you to take away that you can think of when you only are able to Implemented later and so first and foremost the key is that you're then very clear about kind of the Conditions of that employee grant So you want to make sure that you clearly align on is that pre-value is that pre-round is that post round because that will Obviously have an effect on dilution You will ideally want to back date the vesting to the start date of the employee so that that employee is not punished for you only installing an option plan later and you want to Be sure that you really know down everything that's been discussed and agreed on so that there is like no Misunderstandings when you actually set it up. So key takeaway here set up your employee is up as early as possible and then when you There is like I mean we have a book where you can read all of that But I wanted to mention that as well kind of what is a couple of key things to think about when you think about Setting up your ease up first and foremost The concept of vesting and you're all familiar with vesting typically you see a one-year cliff with 25% straight line vesting year-of-a-year so a four-year vesting schedule overall One thing that we've been seeing more and more and that we'd encourage you to think about is actually back loaded vesting So that maybe in the first year only 10% vest then 20% then 30% then 40% The reason being that in kind of the competitive talent market that we are in today Retention is becoming so important that you want to have some Lever to encourage retention Beyond the mission and culture that you're building but so we've been seeing that more and more Secondly strike price with the strike price, which is the price at which the employees can actually buy their options then we Encourage you to go as low as possible We know that that's not possible everywhere and the UK and in the Baltics. It's possible to set it like Arbitrarily to like your desire, but it does vary by country and so if you don't have the option to Formally set it like as low you can always think about a phantom share program Which effectively is like a mimic option program, but is really a bonus and so there there's no strike price you can just Arbitrarily set it to the levels that you want to What is important about the phantom share program that I would also encourage you to think about is that? There since there is no strike price at which the employee then buys the options and maybe has some skin in the game you We've also seen people thinking about capping the upside when an employee leaves So you want to be generous there, but if an employee leaves you could think about for example capping The upside that they get from the options that like 2x 3x 4x the valuation that they've been leaving it so that they're really Rewarded for the work they've done But then not necessarily participated in all the like Upside that has been created potentially when that employee has left already Thirdly is levers so we encourage you to be generous there as well and only use bad lever clauses if Someone is terminated for cause the reason being all your former employees will be out in the wild and talking about you And so you want them to leave with the best feeling possible you want them to be your references your Advocators and you want them to speak positively about you as a company and that's just much more rewarding when you like Basically allow them to leave kind of with upside rather than like them leaving with a bad taste So would encourage you about that as well What a lot of you have been probably thinking about or hearing about when it comes to key talent is accelerated vesting So the idea that when you as a company get bought the like shares of that of specific key hires vests fully and so that they don't need to stay like under that new Ownership and and what we would encourage you to think about is to limit that as much as possible Because it's really like a poison pill for the potential acquirer You have to think about it that way the company that Wants to buy you buys you partly because of the talent that you've built up And if they see that the key talent that you've been bringing on is suddenly fully vested They know that there is a high risk to leave and there is probably additional financial Effort required to have them stay because you likely need to like set up a new option program that incentivizes to them Stay so I would be very careful in and handing out accelerated vesting terms You obviously want to be consistent in The clauses and the requirements that you go give out in your grant schemes because people talk and the last thing You want is that somebody finds out this person is alexa accelerated vesting in this not or this person has gotten this So you want to be as consistent as possible Which we know is hard when you really want to get this one key hire But just to encourage you to stick to that principle and then lastly communication is everything so You want to What we've actually been seeing is really really helpful is that you have own if you have ownership for all so that Anybody in the team has at least like a small stake in the business Because what that allows you to do is to address everybody in a joint forum rather than saying okay Like let's say half of the group is gonna meet and we're gonna talk about it You will like empower everyone as owners when you fundraise you can celebrate it and say hey look there is upside for you You can just kind of be inclusive of everyone and celebrate as one and so we encourage you To think about just handing out employee grants that literally everyone in the organization And the other part in communication is to my point earlier that you kind of really walk them through the concept of what that means And what this is worth and so what we've been seeing is really helpful there is using cap table software that lists kind of the grants companies like Carter or seed Legals or others that not only help you to like Have the overview, but that often like visually allow you to show to your employees. This is what this means. This is what This will turn to if we reach this valuation This is what the new fundraise now means to you So and would really encourage you to think about that So with that I'm actually already Almost at the end of my talk and you can if you thought this was interesting You can really go down the rabbit hole on our website and go through all these resources So as I said, we've wrote a book about rewarding talent specifically Which you can find online which goes through all the concepts that I've just explained We've actually also written a book about international expansion to the US and International expansion to Europe which go in depth through concept what you want to think about maybe when it comes to employee incentivization When you expand internationally and my colleague Sophia is actually going to talk about this tomorrow Then you want to play around with the option plan where you can really fine-tune like what geography what stage what? Function you want to hire for and what the average for this Like company and role will be and then as I mentioned on the outlook I would really encourage you to sign our Manifesto for better employee ownership regulation and government policy in Europe So if you find that on our website it's the not optional campaign and we continue to be pushing in all European countries to get to best practices as we've Seen it being adopted in the Baltics in the UK. And so I'd encourage you to take a look at that So with that, I'll leave you to it I'm happy. I think we have time for maybe one or two questions, which I mean Dominic my colleague is probably much better suited to answer but I'm happy to give my best at it and Yeah, just be proud of the companies that you're building we at index are we've never been excited We've never been more excited about the startup exists ecosystem in Europe We can't wait to see what you guys are building and we hope we get to back some of you. Thank you