Local start-ups lead in sharing equity with employees

A recent report by private capital sector software provider Carta found technology start-up founders in Australia and New Zealand outperform US counterparts in sharing equity with employees.

In its first Startup Equity & Workforce Report, Carta finds that, in 2024, 51.8% of Australian and New Zealand start-up employees exercised rights to stock options compared to 32.2% in the US.

Local start-ups also led the world in setting aside a median 12.6% of equity for employee stock ownership plans (ESOPs).

Carta’s Singapore-based APAC and ME managing director Bhavik Vashi said the data, extracted from software provided by the company, showed that founders in Australia and New Zealand recognise that giving employees a genuine stake in their businesses keeps the employees motivated and committed. Local founders have continued to appreciate the value of involving employees in ownership of their companies even in the tighter capital raising environment since 2022.  

Carta, which has a sales and services office in Sydney, recently introduced its free entry level cap table management platform product, Carta Launch, in Australia.

Vashi said Launch has been made available to companies that have raised less than $US1 million and have less than 25 stakeholders.

As the business grows, and founders need to raise more capital and issue more shares, they can subscribe to Carta Build which will also help them design ESOPs. Build also provides employees with access to current valuations for their share options.

Globally, the platform is used by 25,000 companies that have, in total, gone on to raise $US24 billion.

“We are offering Carta Launch free to start-ups because it is critical to get the cap table right from the start,” Vashi said. “I know lots of founders raise friends-and-family rounds first but, if they don’t plan properly at that stage, it can cause problems later.”

Vashi said Build helps founders work out appropriate proportions of equity to offer their first employees and decide values of equity they might offer later key employees in specific roles such as software engineers and sales team leaders, by benchmarking averages across Carta data.

Access to additional software and advisory services is offered through the platform.

Separately to Carta Launch and Carta Build, Carta offers a funds management software platform which is used by both venture capital and private equity fund managers overseas and has been taken up by at least one Australian venture capital firm. 

Image: Carta offers software that enables start-up founders to manage their cap tables appropriately from day one.