The contrast (of stock cultures)
There is no stock culture in Europe. In contrast, for United States, incorporating is the only way to go for a startup. The reasons are obvious. Selling equity quickly and easily to the right people can be a key part for a startup to be successful. From what I understand:
- You need to motivate early employees so they do their best to make their (yours) equity grow in value
- You need to raise funds by selling stock to accelerate quickly and again, grow in value
Obviously, in a limited liable company, none of this is possible. Here’s what’s happening in Europe:
- Universities do not educate and governments do not provide a good stock environment
- The result is that general public have very limited knowledge about it
- Then very few lawyers, bookkeepers and accountants understand stocks
- Then startups choose to form limited-liable companies
- Then they can’t motivate employees by offering stock
- Then investment market is complicated and fewer people/angels invest
See the chicken-egg pattern? Nobody is interested in stock because nobody is interested in stock. Even if you form a stock-based entity in Europe, how much is your lawyers, contracts and accountants going to cost you? Who are you going to sell your stock to? How can you motivate your employees? Employees don’t even realize why stock is valuable, since there is no acquisition knowledge in the first place.
Motivated employee @ Google parking lot, Mountain View.
A system which works so well in US is almost non-existent in most of the EU countries. The technology culture is different. I’m not sure whether this is one of the primary reasons why US has a better startup track record, but I suspect it is.
Cyprus or Luxemburg aren’t changing the culture, they just provide a stock-friendly land. I think EU badly needs a stock enlightenment as a whole. Until this contrast between two largest markets is smoothened out, EU will always play the second league. Only the investors have the power to blur out the edges and enforce a new culture.
