An employee who finished his job at the start-up was given three months to pay $ 300,000 to exercise his options for shares in the company, before losing them. The employee did not have the requested amount, so he turned to the EquityBee platform, which matched him with investors, who financed the realization. Shortly afterwards, the company went public and the value of those shares, at the end of the blocking period during which they are not allowed to be sold, was already over $ 4 million. Of this, the retiring employee received about three million dollars and the investors raked in about a million.
Equity B CEO Oren Barzilai prefers not to disclose the name of the company in question until he publishes a complete case description of him. Equity B itself charges a commission of 5% of the investor at the time of receiving the investment and another 5% commission on the employee, if and when, he records a profit on the sale of the shares.
“The employee receives the large sum”
Equity B was founded in 2018 by Barzilai, along with two of his childhood friends, Oded Golan (VP of Product) and Modi Radshkovitz (VP of Operations). Barzilai was one of the founders of startup Tapingo, which was acquired for $ 150 million by American Grabhab, and he said he saw how employees who left the company prematurely missed out on exit. This is exactly the problem Equity Bee is trying to solve.
“An employee who participates in a successful exit is for him a life-changing event. He receives in one day a cumulative salary of 5-6 years, which is something that will affect him and his family, and we are proud to have helped dozens of employees in the past year to exploit this potential. You see the money, “says Barzilai.
Employees who stay to work in a start-up have no dilemma and they can exercise their matured options, and turn them into shares only at the time of the company’s IPO or exit, when they are confident they will benefit from the deal. However, employees who leave receive a deadline of about 90 days, during which they have to exercise the options, without knowing whether they will actually benefit from any of them. This realization can be very costly. According to Barzilai, the average employee in Israel will be required to pay $ 40,000 for the average exercise, and in the United States the cost of exercising the shares will reach $ 140,000 on average.
When a retiring employee turns to Equity B, the platform finds investors who are interested in financing the purchase from a pool of 8,000 investment funds, family offices and capital owners registered with it. Equity B ensures that the parties sign an agreement, in which the employee undertakes to return to the investors the amount they paid plus interest, if and when he can sell his shares in an exit or offering. Equity B also manages the transfer of funds between the parties.
The interest that investors will receive is determined by their risk, derived from the attractiveness of the company from which the employee retires and whether his options are outside the money or inside the money according to the current value of the start-up.
Last December, Equity B published a list of the most coveted options by platform investors in Israeli technology companies or those connected to Israel. In first place was Haoze, an American start-up with Israeli founders who are developing a home renovation platform, followed by Ituro, Monday, Pioneer and Tabula, the latter two have since announced that they are merging with Spock and could soon be traded on NASDAQ.
In the case of an IPO, the employee can transfer to investors some of the tradable shares in the company and keep the rest with him, or transfer their monetary value according to a defined calculation. Barzilai says that to date it has not happened that the former employee refused to pay investors, although such an option is seemingly possible and will lead the parties to court.
“We create a mechanism where everyone benefits and one that makes it difficult for employees not to pay on time,” he says. “Do not forget that we are dealing with high-tech people who have money and they are required to pay only after they themselves have received the large amount in the deal, so the risk here is low. We had no problem and I hope we do not get there.”
The average time to exit has been significantly extended
Equity B announced this week a significant $ 20 million round, which joins the $ 8.3 million the company has raised in the past. The current round of fundraising was led by Group 11 of Dubi Frances and featuring Zeev Ventures of Oren Zeev, Battery Ventures and ICON Continuity Fund. Early investors in Equity B also include Adam Neumann, founder of WeWork, and Shaul Olmert, founder of Playbase.
Frances Dubi / Photo: Eyal Yitzhar
The company employs 33 people, 20 of them in Israel. Equity B began operating in the Israeli market and at the beginning of last year opened American operations, which, according to Barzilai, have recently become larger in volume. Equity B does not disclose its revenues and Barzilai only says that in the past year the number of employees who used the platform to exercise options increased 2.5 times compared to the previous year and the number of investors in the platform quadrupled within a year. Since its inception, tens of millions of dollars in investment agreements have been signed through Equity Bay, according to the company’s announcement.
Following the recruitment, the company plans to double the number of employees. “In the short term we want to use recruitment to add automation to the site and speed up the process of collecting and verifying details alongside packing the deal that finds investors. We still do not think the whole process can be automated because it is a $ 100,000 or more deal. “Buying an apartment, so he will at least want to talk on the phone with someone and know who is on the other side,” says Barzilai.
In the long run, according to Barzilai, the company intends to launch more products. “Our goal is to help start-up employees participate in the success of the company and employees who leave are just one side of it. There are also employees who stay in the start-up and do not want to leave, but the average company issuance time is greatly extended from four to 12 years, which means they wait “A lot to meet with the money. Sometimes a situation is created where 90% of their equity is buried in options in the company. We want to engage in it.”
In the last year in particular, we have seen a wave of IPOs by companies, does that not change the situation?
“Even when you look at this period, most of the companies that go to the public market are still old companies, like Tabula and Outbrain, that have been around for a decade. There are unusual companies that came out early like Invis and Autonomous, but they are few. Recruitment, but it is still not enough and does not solve the problem for them. “
The company was founded in 2018 by three childhood friends Oren Barzilai, Oded Golan and Modi Radshkovitz • Develops a platform that matches employees who need to exercise options for investors who help them finance it at a future interest rate • Ventures, Adam Neumann and Shaul Olmert • Employs 33 employees, 20 of them in Israel, the rest in Portugal and the USA