By Christian Gabriel on Monday 23 August 2021
Sharing wealth within the UK's fintech unicorns will help future startups and venture capital funds, create thousands of new jobs and billions of pounds, writes Christian Gabriel, CEO at Capdesk
In July, Revolut became the highest-valued UK startup at £24bn, hot on the heels of Wise’s £8bn public debut the week before, where current and former employees may have cashed in as much as £800m in employee stock options.
These events are a triumph for Britain’s status as a tech hub – and the benefits reach wider than you might think. Beyond simply lining the pockets of venture capitalists and hot-shot founders, equity shared with fintech employees creates new power players: angel investors and entrepreneurs who suddenly have access to cash to fund their own ventures and breathe new life into the tech ecosystem. In other words: startup mafias.
Zoom out, however, and the bigger picture offers less cause for celebration. The UK tech ecosystem lags far behind the US. Last year, Europe saw just 26 IPOs, compared to 70 in the US. Salaries in the States eclipse Britain’s offering, with software engineers in Silicon Valley easily commanding a six-figure base – roughly double their market rate in London.
America – and Silicon Valley in particular – boasts a powerful and mature infrastructure for entrepreneurship, which is unmatched anywhere else. But its unique pull comes from social and cultural aspects which are not necessarily exclusive. Several early movers found success: Oracle and Cisco, for example, were generous with stock options and enjoyed explosive growth as the internet age dawned. Ambitious founders, workers and investors with a specialist interest in tech flocked to the Valley, quickly establishing a high concentration of knowledge, capital, competition and energy. There’s no reason Britain’s startup mafias couldn’t replicate that for themselves.
Meet the mafias
A fledgling Wise mafia already exists, something founder Taavet Hinrikus is no doubt proud of, as an angel investor in several employees’ startups and mafia member himself: Hinrikus was Skype’s first employee. Fintech Plum might be the best-known Wise spinoff, but this mafia numbers around a dozen in total and is poised for serious growth in the wake of Wise’s direct listing.
Revolut alumni spinoffs are similarly on the rise, including Flux and sync. Notably, many new founders have chosen to continue in fintech, applying a similar formula for success as their former employers: pick a lucrative industry that operates on legacy systems and fix its biggest problem.
It seems a smart choice, as the UK is a global frontrunner in fintech. Britain’s consumer fintech adoption stands at 71 per cent, well ahead of the US at 46%. The UK has been independently assessed as the best place in the world for fintech – surely no surprise to the quarter of its population holding a neobank account.
With a focused effort to cement their global supremacy in this sector, fintechs could supercharge the UK’s and European tech ecosystem, like the PayPal mafia did in Silicon Valley. Since PayPal’s IPO and subsequent acquisition by eBay, around 20 of PayPal’s early employees have gone on to found or fund tech firms valued north of a billion dollars, aided by their PayPal equity. Tesla alone employs 70,000 staff; Founders Fund has backed almost 700 companies, with a fifth of investments going to diverse founders.
Sharing wealth within British fintech unicorns will plant the seeds of future startups and venture capital funds, creating thousands of new jobs and billions in business value, helping Britain to compete with the rest of the globe.
Fintechs who want to attract highly motivated talent and maximise their positive impact on the wider economy should follow in these giants’ footsteps. Future founders need exposure to understand how businesses are run, and benefit from transparent leadership. Networking opportunities are vital. So is capital.
In 2018, Index Ventures reported that UK startup option pools stood around 10 per cent. In 2021, our data suggests the figure is closer to 18 per cent. As fintech thrives, it’s particularly exciting to know that employees stand to share in that new business wealth. Hopefully, the average option pool size continues to rise, alongside our knowledge levels: Britain’s startup talent must understand the value of equity schemes and how they work, to reap the full benefits.
Business benefits now
Employee equity schemes come with a host of immediate business benefits, long before staff can cash out. 80 per cent of candidates would prefer to work for a company that offers equity, and 79 per cent say they’d be more committed to – and work harder for – a company that does. An Eqvista study indicates that business productivity increases by 4 per cent to 5 per cent on average every year when share schemes are adopted.
But in 2021, success isn’t all about achieving unicorn status. It's about understanding that your startup has the potential to build a better future, not just for yourself and your customers, but for employees, society and the wider economy. Only then can fintech founders truly deliver on their startups’ potential.
The views and opinions expressed are not necessarily those of AltFi.