While overall investment in European tech startups has nearly halved, dropping from $82 billion in 2022 to $45 billion in 2023, Romania, along with Lithuania and Luxembourg, has disrupted this trend. This is highlighted in the State of European Tech 2023 study by Atomico, one of Europe's leading investors in IT startups, which reveals Romania's performance in a challenging economic landscape.

Despite being 16th in a ranking of 30 European countries, with just under $1 billion invested in non-listed tech companies, Romania's growth in this sector is noteworthy. This context sets the stage for a deeper exploration into why equity matters, especially in emerging tech markets like Romania, where investment trends are shaping a new economic narrative.

In recognition of Romania's National Day, SeedBlink is gathering insights from distinguished investors, entrepreneurs, and key players in the ecosystem. We're focusing on the pivotal role of equity ownership and its far-reaching impact on Romania's future and, by extension, on Europe's economic landscape.

The role of equity ownership in building community and prosperity: a Romanian and European perspective

Marius Ghenea of Catalyst Romania underscores the significance of direct equity ownership in companies for both investors and the companies themselves.

“Direct ownership of company shares is paramount as it helps investors build more diversified portfolios with higher return potential, and it also supports companies by providing additional diversified capitalization and a smarter shareholder structure. Furthermore, owning shares generally brings about more responsibility from all parties involved, including management, boards of administration, shareholders, and other stakeholders."

Vladimir Oane, co-founder of DeepStash, challenges the societal belief that the only way to accumulate wealth is through a well-paid job, ideally in the public sector.

"In our society, there's a belief that the only way to become wealthy is to have a well-paid job, ideally a government position. This is a misconception. In reality, a salary is essentially selling your time, while true wealth is generated by owners who earn even as they sleep. The ideal investment is in technology companies with enormous potential for rapid growth."

Daniel Mereuta, an esteemed businessman and angel investor, articulates the necessity of integrating equity ownership into Romania’s national strategy.

“I think increasing equity ownership should be part of the national strategy and most probably not only from an economical point of view. As life span continues to grow, we all need to diversify sources of income, we need to build financial security through investments so we can navigate more safely through the multi-stage life that we are currently experiencing. Life is no more about going to study, work and then retire. The stages now are mixing, with multiple career paths, study, wealth accumulation, then maybe switching careers again etc. Again, the answer is equity. And that's why increasing equity ownership should be a national strategy. “

Mihnea Craciun from Endeavor Romania emphasizes the multifaceted importance of equity investments. He notes that equity is the most lucrative long-term asset class compared to other investment types.

"Equity investments are essential for numerous reasons. Firstly, equities offer the highest long-term returns compared to other asset classes, such as bank deposits, bonds, and even real estate. Secondly, for any investor building a diversified portfolio, allocating a portion of their capital to public or private company shares is crucial, as this does not limit the potential for high returns. Finally, equities are an excellent way to align the interests of various stakeholders, from employees to consumers and suppliers.

By owning shares, they share and amplify a company’s success, effectively becoming capital providers. This not only creates strong local companies aligned with national strategic interests but also contributes to efficient and sustainable economic development. On an individual level, owning shares leads to the development of financial literacy, which in turn, better allocates economic resources on a macro level.”

Ciprian Man of Growceanu highlights the rising trend of cross-border investments in promising startups, termed "moonicorns".

"We are increasingly seeing cross-border investments in high-potential startups, which we like to call 'moonicorns'. This international investment in young startups is different from, say, stock market investments. The closer the relationship between investors, their communities, and startup founders, the more exponentially the chances of these young companies' success grow. Thus, holding equity in 'moonicorn' startups is part of a virtuous cycle of community and prosperity, essential for an integrated Europe".

Vlad Andriescu, Editor at Startup.ro, believes that equity ownership transforms us from mere users of products and services to stakeholders with a deeper connection.

"I believe that equity ownership is a transformative approach that elevates us from being mere users of products or services to acquiring a new level of engagement. Whether it involves a small or large investment, it brings us closer to the product or service, instilling a sense of responsibility in us, and potentially leading us to become ambassadors for a startup, should the situation arise.

At present, companies need a community around them – not limited to social media or customer interactions, but rather a community genuinely interested in the company's well-being. This is a community before which stakeholders and founders are accountable, almost serving as business integrity watchdogs.

Furthermore, equity ownership is a means to access long-term capital, reflecting financial literacy among individuals. It channels personal effort towards serving a greater mission."

Evaluating the impact of expanding employee stock option plans in Romania's business ecosystem

Marius Ghenea of Catalyst Romania believes that employee understanding of ESOPs boosts motivation and company growth.

“If employees better understand the benefits of participating in a Stock Option Plan/Employee Stock Option Plan (SOP/ESOP), such as receiving options to become shareholders in their company, their motivation and interest in producing superior results aligned with the business strategy will increase. In other words, this can lead to a virtuous cycle where the additional contribution of employees helps companies grow faster and more profitably than they normally would, benefiting both the initial shareholders and the employees receiving stock options."

Voicu Oprean, a strong supporter and promoter of offering stock options to employees, particularly in the IT sector and other people-centric domains, underscores the significant benefits of such plans.

"I am a strong supporter and advocate for offering stock options to employees, especially in the IT sector, which is my area of focus, or in domains that involve working closely with people. Whether a company is private or public, offering stock options, beyond the tax-advantageous fiscal component, significantly raises employees' awareness that they are not just workers but also business partners. Their efforts are rewarded through an increase in the company’s value."

Andrei Dudoiu believes that ESOPs can lead to extraordinary long-term rewards for employees, as seen in the success stories like UiPath.

“In terms of numbers, a majority of business angels worldwide were once employees who benefited from Employee Stock Ownership Plans (ESOPs).No salary can ever match the long-term rewards of an ESOP given to an employee in a startup that skyrockets to success. Take, for instance, the ESOP of UiPath: early-stage employees who genuinely added value saw returns that surpassed their wildest dreams. What once seemed like a mere optimistic outlook became a tangible reality. It’s that simple: share the work; share the worth.”

Daniel Mereuta identifies talent shortage as a major issue in Romania and Europe, advocating for equity to attract, develop, and retain talent.

“The major shortage that we have in Romania (and not only, Europe has it too) is talent shortage. We have great potential but we need to find a way to attract, develop and most importantly retain talent in Romania. We all want to create something; we all want to be part of the creation, and what better way of engaging the generations if not creating the means for people to own a part of it. You cannot create anything alone, and to build great teams, they need to have a stake in it, they need equity. We cannot have only two sides anymore: entrepreneurs and employees. We need accountable people, reliable, innovative, engaged, committed, etc. and this you achieve through equity. For me, my main drive to start investing in start-ups was exactly the need to own a part of the business that I believed in.“

Irina Obushtarova, Co-Founder & CEO of The Recursive, argues that ESOPs are instrumental in attracting exceptional talent, aligning employee and investor interests, and enhancing a company's appeal in capital-raising ventures.

"Implementing an Employee Stock Option Plan (ESOP) should be on the agenda every Romanian startup. If implemented well, ESOPs can play a pivotal role in attracting highly sought-after talents crucial for the growth of young companies. Talents who are not only rockstars in the field, but also possess entrepreneurial spirit and skin in the game side by side with the founders. Moreover, as many Romanian startups set up their HQs in foreign markets for strategic reasons, ESOPs become a valuable mechanism for employees to capitalize on the generated wealth in the event of an exit. Last but not least, ESOPs aligns the interests of employees with those of investors, further enhancing the company's appeal when raising growth capital.”

Radu Atanasiu, Associate Dean at the Bucharest International School of Management, illuminates how ESOPs serve not just as a tool for retaining key personnel.

"I first became acquainted with ESOPs - Employee Stock Option Plans - several years ago when a venture capital firm invested in a startup where I had also made an investment. Observing their approach was enlightening; they, with their extensive experience in the ecosystem, consistently implemented ESOPs across all their investment ventures. Witnessing the remarkable outcomes, I adopted this strategy in my future endeavors.

A commonly understood benefit is that key employees, when holding shares or options, are less inclined to leave the company. But this is merely the tip of the iceberg. As shareholders, employees become deeply motivated and engage more strategically in decision-making processes, offering insights that transcend their executive roles. Having such committed partners within a company is immensely beneficial."

Vlad Druța, a partner at AXPartners, examines the transformative impact of stock option plans in Romanian companies.

“If we look at any of the more mature markets, we see that the implementation of stock option plans by start-ups has a very positive effect. On the one hand, the employees become much more interested in the successful development of their employer. On the other hand, such plans help foster an entrepreneurial mindset, as the employees become less risk averse, which then translates into additional innovative companies being founded by such employees.”

Sabin Gilceava, an expert negotiator and mediator, draws on an African proverb to illustrate the importance of collaboration in achieving long-term and sustainable growth.

"An African proverb says, 'If you want to go fast, go alone; if you want to go far, go together.' For an entrepreneur starting a startup, having a brilliant idea or identifying a perfect niche can give a great start. For more sustainable and long-term growth, attracting valuable people and rewarding them through equity ownership programs could be crucial. Few things motivate better than having skin in the game, feeling directly the contributions to the company's success or the risks involved" .

Razvan Neacsu of FintechOS believes that employee stock option plans can lead to the creation of new enterprises, thereby enriching and sustaining the ecosystem.

“Company option incentivization plans both need and feed the surrounding ecosystem. If there's no market for company shares then there's no value in those options. People need to keep an eye on how the company and the markets are doing, so they are taking a wider focus beyond their team's backlog. In some cases, where the company may experience substantial growth, some participants may decide to take their windfall and their enhanced business acumen and develop new enterprises. Consequently, this contributes to the enrichment and sustenance of the same ecosystem.”

Anca Grigorescu of bpv GRIGORESCU ȘTEFĂNICĂ reflects on the strategic importance of employee option plans for Romanian companies' competitiveness.

"Nearly 20 years since their introduction in Romanian legislation, employee stock option plans have become a key strategic tool for company competitiveness. They offer multiple benefits, including motivating and retaining key employees, attracting highly skilled personnel, and improving organizational culture and performance. Implementing these remuneration tools invests in a cohesive, experienced team, motivated to contribute to the company's long-term success. This is especially relevant in the current economic climate, marked by instability and a significant shortage of skilled personnel.

Romanian companies are increasingly aware and informed about the opportunities these remuneration plans offer, not just at the organizational level but also in terms of broader macroeconomic impact. Widespread implementation of these tools can stimulate investment, innovation, productivity growth, and the development of new technologies or products, thus enhancing the competitiveness of Romanian companies both locally and on the international market."

Nicoleta Cherciu believes that wider implementation of employee stock option plans generate a cycle of growth and rewards.

“Such plans can have an exponential effect on increasing the population's welfare. Beneficiaries of these programs can successfully exit their companies, becoming investors and/or founders themselves, who can subsequently create and grow companies that reward employees in a similar manner.”

Recommended strategies for enhancing financial and investment education in Romania

Marius Ghenea recommends SeedBlink for investment education and advises those with significant financial holdings to consult financial and wealth management experts.

"Certainly, a valuable ecosystem that includes educational elements in the investment field is SeedBlink. Therefore, I recommend that everyone who wants to better understand investment opportunities in this area should participate in programs organized by SeedBlink for investors. For financial education and investment, individuals with significant financial holdings should probably also seek advice from experts in the financial and banking sector, particularly those specializing in wealth management, as they can assist with information and suggestions for portfolio investments."

Vlad Andriescu recommends several financial education initiatives in Romania

I value the efforts of various banks in Romania for their financial education programs:

• BCR Money School: An initiative focused on financial education for all ages. More information can be found at BCR Money School and BCR's Financial Education Projects.

• Banometru: This platform has successfully built a robust community, engaging users in financial learning.

• Raiffeisen's Money Bistro: A unique platform that brings personalities together to discuss financial matters.

• Academia Patria: Similar to the above, this program by Patria Bank focuses on financial literacy.

• Vice Series on Youth Finances, which explores the financial challenges faced by young people in Romania.

Nicoleta Cherciu, technology and investment lawyer, shares her two favorite financial educational initiatives:

"I believe it's essential for the majority of the population to benefit from such education, so I commend the 'Banii in miscare' initiative which produces comprehensive and accessible resources for all. I also recommend 'The Little Book of Common-Sense Investing'."

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As we conclude our exploration of equity ownership, its role in enhancing both Romanian and European competitiveness is unmistakably clear. This concept transcends simple financial investment, representing a profound commitment to community and innovation.

The insights shared underscore how equity ownership not only empowers individuals but also strengthens organizations, significantly contributing to the socioeconomic advancement of Romania and, by extension, Europe.

In this transformative journey, each of us, be it entrepreneurs, investors, or employees, can play a pivotal role. Our collective efforts are key to fostering a future where equity ownership drives inclusive growth and prosperity.

Hope this exploration inspires and propels us towards a future of enhanced competitiveness and shared success.

Happy National Day, dear Romanians!

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Special thanks go to Marius Ghenea (Catalyst Romania), Vladimir Oane (Deepstash), Voicu Oprean (Arobs), Mihnea Craciun (Endeavor Romania), Ciprian Man (Growceanu), Daniel Mereuta, Vlad Andriescu (Startup-ro), Irina Obushtarova (the Recursive), Radu Georgescu Atanasiu (BISM), Vlad Druta (AX Partners), Sabin Gilceava, Razvan Enache Neacsu (FintechOS), Anca Grigorescu (Grigorescu Stefanica), Nicoleta Cherciu, and Andrei Dudoiu (SeedBlink) for their valuable contributions.

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