EquityBee snaps up $55M for a marketplace that connects employees with capital to help them exercise their stock options

·5 min read

Stock options can hold a lot of potential reward for employees when their company is doing well, but not every person will have the funds to fully exercise -- that is, buy up -- the options they have available to them. Enter EquityBee, a marketplace for employees to connect with capital from a network of some 12,000 investors to finance the process. The startup has been on a growth tear this year, and to continue building out features on its platform, and expanding its reach, the company today is announcing $55 million in equity funding of its own.

The Series B is being led by Group 11, with Battery Ventures, Latitude, Local Globe, Greenfield Partners and ICON also participating. Exact valuation is not being disclosed, but Oren Barzilai, EquityBee's co-founder and CEO, said it was in the hundreds of millions of dollars.

The funding is coming amid a lot of investor buzz (pun intended) around the Tel Aviv/Palo Alto-based startup: EquityBee raised $20 million only seven months ago. And in the process of working on this story, this latest round was bumped up by $7 million.

EquityBee is filling an interesting, often under-the-radar gap in the world of stock options. Many tech employees -- especially those at startups -- calculate options as part of their remuneration packages (and indeed, when options are not an option, that can be controversial). Indeed, in the U.S. alone there are some 6 million startup employees today that have some form of equity.

But in a lot of cases, employees aren't fully able to take advantage of what they can on the options front, because buying them up can be costly.

"The average employee needs $140,000 in cash to exercise fully," Barzilai said. In total he estimates that there is up to $60 billion swimming around in stock options annually among startups, but that more than 55% of that goes unexercised every year. "It's a big amount that they are losing," he said of employees who are missing out.

On the other side of the EquityBee marketplace, there is a huge repository of cash ready to invest in the startup economy, and those holding the purse strings are regularly looking for ways of diversifying how they invest.

"Investors [in the network] are getting great access to invest in these companies by providing the funding for options," he said. "It’s not a loan, it’s an investment."

The idea is that employees put their funding request on to the platform, and investors essentially bid to finance it. The funding can come in the form of a syndicate, or a single individual. In the case of the investor and the employee who will get the funds, neither will know direct identities, although investors are able to see which company the employee works for, so theoretically the investor can apply some judgement around whether it's a great or risky bet.

Employees are not required to pay back the money until a liquidity event impacts those options, and they only have to pay back the primary money, plus percentage interest, if they make any money on those options. This means that if the stock options end up being worthless, the investor loses money, but the employee owes nothing. If the company has a great exit, the employee pays back the funding with interest. But also: if the company has only a middling outcome, and an employee gets some but not a great payout on those options, that too triggers a payout to the investor. In other words, none of this is a sure thing, but for employees and investors who are willing to take a chance on options, it's an interesting way to help both sides play in the game.

So far, EquityBee has found some strong traction in the startup investment ecosystem. Capital in its Investor Network -- which includes family offices, funds, high net-worth individuals and, increasingly, Barzilai tells me, VCs -- has seen 500% year-on-year growth since 2020, and the number of players in that network has grown by 430% -- two signs investors interested in getting involved. Meanwhile, the number of employees tapping that network has grown by more than 350% in the same period.

Barzilai said that at the moment EquityBee does not have any formal partnerships with the companies that are 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 -- but he notes that many of them recommend EquityBee informally to their employees who need financial help to exercise their options; and you can imagine EquityBee formalizing some of that as part of a wider suite of benefits and HR services that companies offer.

Indeed, with options continuing to remain a strong force in how startups are built, and how employees are getting a share in their employers' success, there are likely going to be more enhancements to what EquityBee can offer to employees using its marketplace for financing. Barzilai would not be drawn out on future features but notes that there is an opportunity to provide other kinds of liquidity -- that is, cash -- to employees against the value of their options, in cases where they may not be vesting them any time soon. It's also why we are seeing other startups, like Vested, also emerging to provide other kinds of services to these employees to help them manage their assets in a better way. That, too, also speaks to future services that EquityBee could also offer.

"After leading EquityBee's Seed and Series A rounds, we have witnessed the company's continued triple-digit growth over the past year. The extraordinary founding team has demonstrated a great product-market fit, and their work continues to distance EquityBee as a true market leader," said Dovi Frances, founding partner of Group 11, in a statement. "EquityBee's industry-defining tech solutions will help millions of tech employees gain access to liquidity in a market otherwise set up against them. Our decision to scale our investment so soon after our previous round is an easy one and we are pleased to continue supporting the company and its unprecedented growth."

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