Leveraging low valuations with startup stock options
At an early stage startup, the share price is low, so a stock option with a low strike price gives employees substantial percentage upside if the company succeeds, for very little cost today. This is why stock options remain the default early instrument in Europe. Tax-advantaged regimes such as UK EMI and French BSPCE were specifically designed around options, offering capital gains treatment that RSUs generally cannot access, which reinforces options as the default early instrument.
RSUs at a very early stage would deliver shares, and typically trigger a tax charge, on a company that might still fail entirely, exposing employees to real cash tax costs on highly uncertain value. This asymmetry, on top of the taxation treatment, makes RSUs a poor fit before a company has meaningful, demonstrable value.
Shifting to restricted units at later stages
- The company has raised enough capital that its valuation is well established and a low option strike price would look unusually generous relative to fair value.
- The company is approaching an IPO or has already gone public, where RSUs are the market standard and shares are readily tradable.
- The company wants to simplify equity administration for a larger workforce, avoiding the exercise and payment mechanics of options.
- Employees or the local tax regime make deferred cash-free grants more attractive than an early exercise decision.
Growth stage and pre-IPO companies in Europe increasingly mix both instruments, using options for early joiners and RSUs, usually with double trigger vesting, once the company is more mature.
Selecting instruments based on European funding rounds
| Company stage | Recommended instrument | Key consideration |
|---|---|---|
| Pre-seed to Series A | Stock options | Use tax-advantaged regimes like EMI or BSPCE where eligible |
| Series B to pre-IPO | Mix of options and double trigger RSUs | Avoid dry income risk by delaying delivery to a liquidity event |
| Post-IPO | RSUs | Shares are liquid, tax at vesting is manageable via sell-to-cover |
Whichever instrument is chosen, the underlying goal is the same: give employees meaningful upside aligned with company growth, without exposing them to tax bills they cannot afford to pay from illiquid holdings. Double trigger vesting for RSUs, and sensible exercise windows for options, are the two most important structural tools for managing that risk in Europe.
Founders and candidates often ask
- Can a startup grant both options and RSUs at the same time?
- Yes. Many later stage companies run both an option plan and an RSU plan side by side, often using RSUs mainly for new senior hires once the valuation is well established.
- Is it a bad sign if a private startup offers RSUs instead of options?
- Not necessarily, but employees should check whether the RSUs use double trigger vesting. Single trigger RSUs at a private company with no market to sell into can create a real tax cash flow problem.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.