European tech brain drain ‘number one risk’ ahead of IPO

Chief executive Sebastian Siemiatkowski said a brain drain of European tech talent is the biggest risk factor facing Swedish payments company Klarna as the company approaches its initial public offering.

In an interview with CNBC this week, Siemiatkowski said that Europe's unfavorable rules on employee stock options – a common form of equity compensation offered to employees by tech companies – could lead to a drain of Klarna's talent to US tech giants such as Google, apple and Yuan.

Siemiatkowski told CNBC that Europe's lack of appeal as a place to work for the best and brightest has become a more prominent concern as Klarna, known for its “buy now, pay later” installment plan, prepares for an IPO.

“When we look at the risks of an IPO, I think the biggest risk is our compensation,” said Siemiatkowski, who is entering his 20th year as chief executive of the financial technology company. He was referring to corporate risk factors, a common element of initial public offering prospectus documents.

Klarna's stake accounts for just a fifth of its revenue compared with a basket of listed peers, according to a study obtained by CNBC and which the company paid consulting firm Compensia to produce. However, research also shows that Klarna's publicly listed peers offer six times the amount of equity.

Klarna and its European tech peers are unable to offer more favorable employee stock option plans to employees in the region, but there are a number of obstacles, including costs that erode the value of the shares they receive when they join, Siemiatkowski said.

He explained that in the UK and Sweden, employee social security payments deducted from stock awards are “uncapped”, meaning employees at companies in those countries could lose more than those at companies such as Germany and Italy because Companies in these countries have specific regulations.

The higher a company's share price, the more social benefits it must pay for its employees, making it difficult for companies to plan spending effectively. The UK and Sweden also calculate social benefits based on the actual value of employee equity sold in a liquidity event such as an IPO.

“It's not that companies don't want to pay the fee,” Simiatkoski said. “The biggest problem is the lack of predictability. If employee costs are completely tied to my share price, and that affects my PNL (profit and loss)… it has a cost impact on the company. That makes me not possible plan.

Last year, Siemiatkowski was more explicit about Klarna's ambition to go public as soon as possible. In an interview with CNBC's “Closing Bell,” he said that listing in 2024 is “not impossible.” In August, Bloomberg reported that Klarna was about to select Goldman Sachs As the lead underwriter of the 2025 IPO.

Simyatkovsky declined to comment on where the company will list, saying a specific timeframe has not yet been confirmed. Nonetheless, when it goes public, Klarna will be one of the first major fintech companies in several years to successfully list on a stock exchange.

confirmOne of Klarna's closest rivals in the US is launching in 2021. clogged It will reach $29 billion in 2021.

A study last year by Index Ventures found that on average, employees at late-stage European startups own about 10% of their companies, compared with 20% in the United States.

The UK ranks highly overall among 24 countries. However, it does a poor job when it comes to the administrative burden associated with the processing of these plans. Meanwhile, Sweden fared worse, underperforming on factors such as program scope and execution price, Index Research said.

When asked if he was concerned that Klarna employees might leave the company for a U.S. technology company, Siemiakowski said that was a “risk,” especially given the company's aggressive expansion in the United States.

“The more prominent we are in the U.S. market, the more people will see us and recognize us, and the more offers they'll have in their LinkedIn inbox from other people,” Simiatkoski told CNBC. “

He added that in Europe, “unfortunately, there is a view that you shouldn't pay that much for really talented people,” particularly for those working in financial services.

“This sentiment is greater than in the United States, and unfortunately it hurts competitiveness,” said Klarna's co-founder. “If someone approaches you Googlethey will fix your visa. They will move you to the United States, and these problems that were there, no longer exist.

“Today's most talented talent pool is extremely mobile,” he added, noting that it's now easier for employees to work remotely from areas outside of a company's physical office space.