Does it Pay to be a Technology Startup in Europe or SiIicon Valley?

ImageDuring the last several weeks I have heard several debates on why should European technology companies establish themselves in Silicon Valley.  The pro-European or anti-Silicon Valley advocates believe that technology engineers are more cost effective in Europe and comment that the recent valuations tend to fall into attractive ranges.  The pro-Silicon advocates describe a venture “investment friendly” environment and well experienced advisory support teams.

I believe that the best determinant between the Silicon Valley and European theatres should be based on the best compensation models. Silicon Valley lives and dies by ISOs (Incentive Stock Options) as far back as that moniker originated back in the 1960’s—discussed in a blog. And ISOs are of no value until a “significant event”, defined by legal documents as an IPO funding or M&A, impacts the true value of that equity. These ISOs create the compensation incentives not found attractive in Europe. In fact, last month, one Polish entrepreneur commented that executives expect to be paid in cash, not ISO equity.  ISOs are the tools to attract talent in the U.S., as an earlier blog attests.  Why?  The likelihood for a “significant event” is much greater in the U.S. than in Europe.

Let’s explore the numbers. At the London Stock Exchange, a total 105 companies made their stock market debut on British markets in 2013, raising £15.7bn ( $26.1 today’s U.S. Dollars) in the process. The notable issuance came from PE firms converting their properties into public equity. Some PE examples included Merlin Entertainments, which raised almost £3.4bn in November. Royal Mail, a privatization of a postal operator, provided the largest flotation. Tech companies did raise over £1 bn, far less than U.S. companies. (Financial Times IPO Report.)

The U.S. markets were more active with 178 IPOs $41.27 bn dollars with each company raising a median fund of $107 million (WilmerHale 2014 IPO report).  VC backed IPOs represented 72 of those companies, almost 50%.  P.E. firms backed 49 companies.  And 61% of the IPOs were technology companies raising over $20 bill.

From these statistics one can only conclude that it pays to be a U.S. technology company pursuing an IPO, being backed by a VC firm. When a company goes public, its stock becomes liquid and the stockholders now can convert that stock into cash or other financial instruments. And that exit strategy is what enhances the ISO value.  If the Polish entrepreneur is correct, then European companies have difficulty in promoting ISOs to its personnel on account of the unlikelihood of an IPO path.




About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP,, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy.; For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
This entry was posted in Capital and Management, Entrepreneurship, International, Management and Capital, Mergers & Acquisitions, Strategy, Valuation and tagged , , , , . Bookmark the permalink.

One Response to Does it Pay to be a Technology Startup in Europe or SiIicon Valley?

  1. Pingback: Recreating Silicon Valley Outside of Silicon Valley | Simple Advice for Entrepreneurs on Capital, Strategy, Legal Services, Management, Entrepreneurship, VC Funding and other things –

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