Salto X enables Token Incentive Plans ("TIP") for Remote Startups. Create company tokens, distribute and manage on the Salto X platform. Share your company’s success with contributors - employees, contractors & freelancers, advisors, board members & remote employees wherever they are.
The post-pandemic world has brought a few profound changes in building startups: one of them is building remote-first teams and accessing the best talent irrespective of location. Relocation to the US and Silicon Valley is no longer a precondition to access venture funding. Instead, you can have your legal HQ in Europe and build fast-growing companies. In the US, 8% of the working population participate in equity incentive programs, while in Europe, there is hardly any data on this. Equity incentive schemes are crucial for startups to hire and retain top talent in the competitive tech talent market.
Issuing and managing equity incentive schemes come with many unresolved issues. Employee stock option programs (ESOP) are a top issue for Europe-based startups due to their complexity and taxation (Atomico, State of European Tech 2021). With no synchronised pan-European regulation, issuing employee equity incentives becomes a country-specific endeavour, often with unreasonable set-up costs and an upfront tax bill.
The rise of remote work has added complexity to the already messy situation. Many more contributors are being hired not as direct employees but as contractors, freelancers, or by employer-of-record companies. For early-stage startups, these barriers are often so prohibitive that the promise of shared equity incentives stays as a promise. Until later stages, ESOP programs become necessary to raise new venture rounds.
Dozens of the fastest-growing companies HQ-ed in Europe that we interviewed say that the hurdles don’t cease to exist even for those who managed to structure and issue equity incentives. It all continues to ensure it works: contributors understand the value and how it develops over time and can make their incentive liquid. Secondary market sales are one of the most complicated challenges.
Spring of 2022 came with a bag of surprises, pushing the venture markets into an abyss. Many startups will see their valuations squeezed and runway becoming a top priority with the funding crunch. And many later-stage startup employees will see the value of their stock option holdings wiped out. Hearty equity incentive grants can be the key to retaining and attracting talent with market-competing salaries going out of options. And the startups seeing their employee grants out of money - should double down on top-ups at the new market values.
These factors put early-stage founders in between a rock and a hard place. A red tape & barriers that will take significant time, energy and costs to cut through and demands of their contributors for their fair share of company upside in an easy-to-understand and reasonably tax-efficient way.
The rise of the crypto community into the masses has spurred many technological innovations and new ways of doing things unseen in the software as a service (SaaS) world. In addition, many web3 native companies use their platform native tokens to incentivise their contributors and broader community and raise funding.
While the platform native tokens typically are not tied to any company’s equity cap table, those still fulfil the objective of sharing value and upside created by the underlying community.
The web3 native startup approach inspired us to look deeper into ways of sharing the economic upside of the startups (yes, with a legal entity) while bypassing the red tape that comes with the equity transactions.
Furthermore, web3 technology innovation provides a set of tools that radically transform monetary contracts, including but not limited to
- Using smart contracts as a means to govern monetary agreements and transactions to leave the subjectivity of human judgement and error out of executing the agreed transactions;
- The transparency and traceability that comes with using blockchain as the rails for transactions;
- Deploying programmable Non-fungible tokens (NFTs) to replace paper-like certificates of ownership and infusing those with dynamic information, like company value and key performance indicators;
- Crypto wallets - as proof of identity and a technology enabler to smoothen over-the-counter transactions between different parties, with the ability to white-list eligible transaction parties to ensure transactions happen within the legal boundaries.
- More expansive Decentralised Finance (DeFi) space enables digital asset conversion to other digital assets, such as using semi-liquid assets as collateral for liquid assets and so much more.
Furthermore, 2021 was a groundbreaking year for web3 technology adoption in wider audiences, going beyond the hard-core tech community. For example, one of the most popular crypto wallet providers - Metamask - saw a 38-fold year-over-year (YoY) increase in users, surpassing 30 million active users in March 2022. Combined with significant improvements in user experience, the entry points of web3 technologies have reached the tipping point of becoming an ecosystem for the masses.
We founded Salto X being mission-driven, focusing on solving the problem of contributor incentive sharing, and we see web3 technologies as crucial enablers in achieving the mission. We are staunch believers in the value the web3 technologies can help unlock, and the timing is now.