A Whole New World: How EquityBee is Creating The Private Stock Market of the Future

By Michelle Chang, Senior Associate, Group 11

EquityBee announced today a $20MM Series A financing round led by Group 11 with participation from new investor Zeev Ventures as well as existing investors Altair Capital, Battery Ventures, and LocalGlobe. This is the second time over the past two years that Group 11’s has led a financing round in EquityBee, having also led their most recent financing round back in February 2020.

We believe EquityBee is completely reimagining the private liquidity market of the future by helping employees retain their equity in the companies they help build, and by democratizing access to private company stock. Group 11 has strong conviction in EquityBee’s perfect product-market-fit, position as a first-mover in a massive untapped market, and seasoned management team. We are thrilled to continue supporting EquityBee in its mission to empower startup builders to participate in the success of the companies they helped build.

The Private Liquidity Market is a Dragon With Two Heads

“It is an odd artifact of history that private markets have zero liquidity, public markets have hyper-liquidity, and there is nothing in between.”

- Henry Ward, Carta Founder & CEO

“Two Headed Dragon” by Jan Patrik Krasny

The current liquidity market for private company stock is a problematic “dragon with two heads”. On one head, the employee side, hardworking startup employees lose out on a significant asset, their equity in the companies they helped build, because they cannot afford to exercise their stock options within the post-termination exercise period (“PTEP”). The average startup employee needs $140,000 (which includes strike and tax) to exercise their stock options within the PTEP, which is typically limited to 90 days. On the other head, the investor side, most don’t have access to investment opportunities in valuable startup companies because those companies are staying private longer. The average age of a tech company at IPO today is 12 years, compared with 4 years back in 2000. Moreover, investing in private companies via venture capital is both expensive and selective.

Enter Equitybee, The Disruptive Knight in Shining Armor

Group 11’s recent article “Fintech’s Quantum Leap”, we define true disruption “not as a better version of a legacy product, but as an unrecognizable offering that obliterates the old value proposition.” We invested in EquityBee (and other revolutionary fintechs) because it obliterates a broken, outdated, unfair system, and reimagines the future private liquidity with its platform.

A Knight and his noble steed, or a Unicorn?

EquityBee’s employee stock option funding platform slays both heads of the private liquidity dragon. First and foremost, the employee-centric platform helps startup employees get the money they need to exercise their stock options before they expire. It is a risk-free solution with no upfront or out of pocket expense that allows employees to keep their equity and become shareholders to participate in future IPOs or M&As. EquityBee enables employees to participate in the future success of the companies they worked so hard to build.

For investors, EquityBee provides access to investment opportunities in virtually any private startup company at a discounted price based on a valuation set in the past, and the ability to diversify their portfolio with zero friction and reduced risk.

EquityBee’s Stock-Option Funding Platform Design

EquityBee’s Win-Win-Win business model rewards participants from both the employee and investor sides, captures a portion of the upside in an exit for all involved including EquityBee, and benefits the company whose stock is on the platform by legitimizing the complete value of compensation packages whether employees stay until they are fully vested or not.

To illustrate with a real world transaction example, take Jane Doe (name changed for privacy reasons), an engineer who left OptimalPlus in June 2019. At the time of her departure Jane needed $100,000 to exercise her stock options which were $0.2426 per share. Jane signed up on the EquityBee platform and agreed to pay to the investor upon a successful exit event: the original investment amount ($100,000), 4% annual interest, and 35% of her shares. Jane’s OptimalPlus offer was successfully funded by an investor later that month and she was able to exercise her stock options. A little over a year later, in July 2020, OptimalPlus was acquired at a $2.53 price per share producing over $1 million in gross proceeds. From the proceeds, Jane paid back the funding amount ($100,000), with interest ($4,000) plus the agreed upon 35% share split ($365,000) to the investor. Jane still took home a whopping $573,000 (post fees and pre-tax) that she would have otherwise lost out on had she not secured funding through EquityBee.

A Perfect Product-Market-Fit With No Competition In Sight

EquityBee’s winning model for liquidity has proven perfect product-market-fit as the platform has seen triple digit growth in 2020 and a surge in employee stock options offered in spite of COVID. In fact, COVID has actually increased the demand for EquityBee’s stock option platform and accelerated usage growth as company layoffs and remote work environments have spurred an influx of startup employees transitioning to new companies.

EquityBee’s platform operates in a massive, underserved $60BN market. Unlike the soon to be launched CartaX, Morgan Stanley ShareWorks, and Nasdaq Private Market, all of which are investor or company-centric, only offering company-sponsored secondary sales to institutional investors, EquityBee is the only employee-centric private market liquidity solution. For investors on the EquityBee platform, that means access to highly-coveted opportunities in valuable, private, pre-IPO startups, such as the below, at discounted prices they would not otherwise be able to access.

Blue Chip, Private Investment Opportunities on EquityBee’s Platform

Not “0 to 1” But “1 to n”

In our recent “Fintech’s Quantum Leap” article, we explain that “Once operations are analyzed and made repeatable enough to automate, the next step becomes a new level of orchestration and ‘abstraction’, along with superior data gathering and optimization.” Similarly, EquityBee’s future plans are to go from “1 to n” from product to platform.

This means: (a) fully automating the few processes of the marketplace business that are currently still managed manually; (b) enabling investors to liquidate their investments prior to exit, valuing their positions based on original exercise prices rather than current preferred prices; © creating dedicated investment accounts for investors, or “employee relief funds”, that can buy and sell frictionlessly similar a traditional brokerage but for private securities; and (d) providing live portfolio valuation at any given time through the use of APIs that to databases such as Pitchbook and Crunchbase to compare strike price to current preferred price, to name a few product offerings that are currently in the works.

Beyond these additional product offerings, EquityBee’s longer term, multi-billion-dollar vision is to become a B2B platform as well that allows companies on the platform to offer liquidity for their employees’ options while they are still vesting when they depart either for a new job or are terminated. Rather than having to involve a 3rd party, owners of employee stock options will be able to freely transact between each other, with the sponsor-company, and accredited investors on the platform. This frictionless platform for private liquidity will allow for better employee retention, lower churn, boost morale, and is only fair. EquityBee removes the barriers between startup employees and the wealth they worked so hard to create that is rightfully theirs.

A Growing Business Led By An Experienced Team

EquityBee’s Founding Team (Left to Right): Oded Golan (CPO), Oren Barzilai (CEO), & Mody Radashkovich (COO)

EquityBee is led by a stellar team of seasoned entrepreneurs with successful previous exits. Group 11 is proud to backing co-founders Oren Barzilai (CEO), Oded Golan (CPO), Mody Radashkovich (COO) and the entire EquityBee team, as they eradicate the broken, legacy private liquidity model and create the new, universally accessible private stock market of the future.

We look forward to EquityBee’s continued success and expansion into 2021.

Dovi Frances is a financial services entrepreneur and founding partner of Group 11, a venture capital firm based in Los Angeles, California.