Abstract
We examine the relationship between legal infrastructures and the propensity of startups to offer equity compensation to their employees. Using a proprietary dataset from Equidam, an interna-tional startup valuation service, paired with a metric from Index Ventures, an EU-based venture capital fund, which assesses a country's legal environment's favorability toward startup employ-ee stock options, our study includes over 4,300 early-stage startups across 24 jurisdictions. We identify a moderate and significant correlation between a country's legal favorability to employ-ee stock options and the likelihood of startups in that jurisdiction offering equity compensation. Our logistic regression analysis also points to other crucial factors, such as founders' prior startup experience, engagement with external legal consultants, and a more recent year of in-corporation. This suggests that experience and sophistication play roles beyond just legal con-siderations. We also find that flexibility in stock option pricing, especially in determining the strike price, is a significant legal factor. As equity compensation becomes a focal point in policy debates, especially in the EU, our research offers empirical insights underscoring the im-portance of regulatory strategies that acknowledge and champion equity compensation practices in startups.