Main Highlights
- EquityBee has been on a roll this year, and in order to keep adding features to its platform and extending its reach, it has announced $55 million in equity investment.
- EquityBee has gained a lot of momentum in the startup investing environment thus far.
- Their mission is to empower all startup employees to take part in the success that they helped to build.
- EquityBee fills an intriguing, sometimes unnoticed, void in the world of stock options.
When a firm is performing well, stock options may provide a lot of potential rewards for employees, but not everyone will have the means to completely exercise — that is, buy up — the options they have available to them. Enter EquityBee, a marketplace that connects employees with cash from a network of over 12,000 investors to fund the process. The startup has been on a roll this year, and in order to keep adding features to its platform and extending its reach, it is announcing $55 million in equity investment today.
Group 11 is leading Series B, with participation from Battery Ventures, Latitude, Local Globe, Greenfield Partners, and ICON. The exact number is not being published, but EquityBee co-founder and CEO Oren Barzilai stated that it is in the hundreds of millions of dollars. The financing comes at a time when the Tel Aviv/Palo Alto-based business has received a lot of investor attention (pun intended): EquityBee raised $20 million only seven months ago. And, as they were working on this piece, the current round was increased by $7 million.
EquityBee fills an intriguing, sometimes unnoticed, void in the world of stock options. Many IT employees, particularly those at startups, include options in their pay packages. Indeed, there are over 6 million startup workers in the United States alone who have some type of eq.
However, in many situations, employees are unable to fully make use of what alternatives are available to them since purchasing them might be pricey. “The typical employee needs $140,000 in cash to properly exercise their rights,” added Barzilai. He believes that up to $60 billion in stock options are floating around among companies each year, but that more than 55 percent of it goes unexecuted. “They are losing a significant amount,” he said of the employees who are missing out.
A massive pool of capital for EquityBee
On the opposite side of the EquityBee marketplace, there is a massive pool of capital waiting to invest in the startup economy, and people in charge of the purse strings are always seeking new methods to diversify their investments. “Investors [in the network] have tremendous opportunity to invest in these firms by giving financing for options,” he added. “It’s an investment, not a loan.”
The concept is that workers post their financing requests on the site, and investors bid to support them. The financing might come from a syndicate or from a single person. In the case of the investor and the employee who will get the cash, neither will know the other’s direct identities, however, investors can see whose business the person works for, so the investor may potentially apply some judgment about whether it’s a good or dangerous gamble.
Not obligated to repay funds
Employees are not obligated to repay the funds until a liquidity event affects those options, and they are only required to repay the principal amount, plus a percentage interest if they profit from those options. This means that if the stock options lose their value, the investor loses money, but the employee owes nothing.
If the firm succeeds, the employee repays the money with interest. However, if the firm merely has a mediocre outcome and an employee receives some but not a big payoff on those options, this, too, triggers a payout to the investor. In other words, none of this is guaranteed, but for employees and investors willing to take a risk on options, it’s an intriguing approach to help both sides play the game.
EquityBee has gained a lot of momentum in the startup investing environment thus far. Capital in its Investor Network — which includes family offices, funds, high-net-worth individuals, and, increasingly, VCs, according to Barzilai — has grown by 500 percent year on year since 2020, and the number of players in that network has grown by 430 percent — both of which indicate that investors are interested in getting involved. Meanwhile, the number of employees using that network has increased by more than 350% during the same time period.
While EquityBee does not currently have any formal partnerships with the companies issuing the options — “Our mission is to empower all startup employees to take part in the success that they helped to build,” he said of its target audience — he does mention that many of them recommend EquityBee colloquially to their employees who need financial help to exercise their options.
Indeed, with options continuing to be a significant influence in how companies are formed and how workers gain a stake in their employers’ success, there are sure to be further upgrades to what EquityBee can provide employees who use its marketplace for funding. Barzilai would not comment on future features, but he does remark that there is a possibility to give alternative types of liquidity, such as cash to workers in exchange for the value of their options, in instances when they may not vest anytime soon. This is also why we are seeing other businesses emerge, such as Vested, to give various types of services to these employees in order to assist them to manage their assets more effectively. This, too, alludes to future services that EquityBee may provide.
“After managing EquityBee’s Seed and Series A rounds, we have seen the company’s continuing triple-digit growth over the last year. Dovi Frances, the founding partner of Group 11, stated in a statement, “The outstanding founding team has proven a remarkable product-market fit, and their effort continues to distinguish EquityBee as a real industry leader.”
He also stated that EquityBee’s industry-defining software solutions would assist millions of tech employees in gaining access to liquidity in a market that is otherwise stacked against them. It was a simple choice for them to increase their investment so quickly after their last round, and they are excited to continue supporting the company and its remarkable development.