In the tech world, startups attempt to lure and harness top talent by offering benefits and perks in lieu of cash. The most common is an employee stock options package in the event of an exit, which gives workers not only a stake in the firm but is also intended to keep them motivated and work harder so that they can get a share in their company’s future success.
Many tech employees working at startups calculate options as part of their remuneration packages, often making haggling over a higher salary less important than an options package. In the current economic and financial environment — where tech shares have taken a battering on global markets pushing company valuations down both in the public and private sectors — the value and prospect of employees’ option packages are also impacted.
The market downturn, however, has seen thousands of workers laid off, triggering funding pullbacks and creating a bear market for new tech offerings and putting a freeze on startup workers’ dreams of a lucrative payout.
In 2022, the number of Israeli tech “exits” — mergers and acquisitions or initial public offerings of shares — plunged 58% from the previous year. In this climate, startup employees could be looking to reprice their stock options to reflect market conditions, or haggle with their employees about supplemental cash compensation to keep them happy.
This is where Israeli-founded fintech startup Equitybee comes in.
The startup announced Wednesday that it is launching a platform for startup employees to understand and calculate the estimated market value of their stock options and their net worth, which can come in handy when negotiating compensation, considering a new job offer, or planning their financial future.
“Big tech public companies’ employees have clear visibility to the value of their stock grants. Why should private startup employees be different?” said Equitybee co-founder and CEO Oren Barzilai. “Our mission has always been to empower employees to participate in the success of the companies they helped build.”
“We believe that in times of uncertainty, it’s more important than ever for employees to know their equity value and plan for the future,” Barzilai added.
The startup’s equity value finder model uses a proprietary model of multiple sources of trade data, including a database of about 500 companies, valuations and market sentiment to estimate the fair dollar market value of stock options.
The platform “provides startup employees with the ability to understand the market value of their compensation, make educated decisions about their financial future and even estimate their net worth,” the startup said.
Findings of a recent survey among a pool of 1,000 employees conducted by Equitybee showed that about 70% of startup workers working for more than two years at a startup received more than one employee stock option grant, and 95% agreed that options increase their sense of belonging at their company. About 38% of the surveyed did not know the value of their options and 15% did not have sufficient information on whether to exercise their options.
Given the current market downturn, 66% said they prefer a higher salary with a smaller option grant and 99% answered that they do not fully exercise their options due to risk, according to the survey.
“Startup employees simply don’t know the value of their stock options so they mostly rely on guesses and sometimes false hopes,” Equitybee said in a statement. “As the challenges continue to emerge along with the collapse of Silicon Valley Bank, transparency towards equity value and stock options has never been more important.”
In 2018, Barzilai founded Equitybee with childhood friends Oded Golan and Mody Radashkovich to develop a stock options funding marketplace that connects startup employees with accredited investors who bid to fund the purchase of stock options of private companies before they become public.
While startups are still privately held, stock options are not tradable. But not everyone can afford to wait for payout day, or has the funds to pay the cost to fully exercise their options — that is, buy up and cash in on their equity.
Equitybee’s investor network links startup workers with the necessary funding to exercise their options making them equitable. In exchange, employees agree to share a percentage of the future stock value with the participating accredited investors following a successful exit.
Equitybee has assisted over 1,700 startup employees to exercise their stock options and become shareholders by connecting them to investors such as family offices and funds globally, who in turn get access to access to high-growth, VC-backed startups that have raised at least $30 million in capital. This includes Taboola, MyHeritage, SimilarWeb, MagicLeap and IronSource, according to startup’s website.
The startup, with offices in Israel and the United States, has raised $85 million to date backed by venture capital funds, including Group 11, Greenfield Partners, Battery Ventures and Zeev Ventures, as well as by WeWork co-founder Adam Neumann.