February 6, 2024

EquityBee Review

Read more about Equitybee
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Is Equitybee a win-win for both employees and investors? Learn about what Equitybee offers and see if its features meet your needs.

5-point scale (the higher, the better)

Pros and Cons

  • Flexible terms and conditions
  • Secured, transparent platform
  • Investors don't need company approval
  • High minimum investment
  • Investors have limited rights
  • Funding not guaranteed

Bottom Line

Legit platform that connects startup employees with accredited investors to fund their stock options

Pre-IPO investment is now accessible through investment platforms like Equitybee.

With this, accredited investors can indirectly invest in private companies and startups. There's also an opportunity to buy shares directly from employees when the company goes public.

On top of that, Equitybee also provides a solution for employees who do not have enough funds to purchase their stock options.

Whether you're an employee or an accredited investor, read on to learn more about what Equitybee is and how it works.

What Is Equitybee?

Equitybee is a platform that connects startup employees with investors to fund their stock options.

For employees, this is a great way to get the money they need to exercise their stock options, without selling their shares. This is helpful especially if you don't have a lot of capital.

Equitybee has helped over 2,000 startup employees buy their stock options and become shareholders. Also, many employees have successfully sold their shares in the companies they helped build. Some examples are Airbnb, Coursera, Payoneer, Sprinklr, Confluent, and others.

What is an employee stock option?
Employee stock options give employees the right to buy company stock at a set price in the future. Companies use these as a form of compensation instead of giving employees direct shares of stock. The options allow employees to profit if the stock price goes up. The company sets specific terms like the purchase price and time period in a contract with the employee.

To exercise your stock option is to buy the share at the agreed price.

For investors, funding employees' stock options is an indirect way of investing in private companies, especially startups. If the company has a successful exit like an acquisition or IPO, the investor shares in the profits.

Investors can choose from hundreds of top startups from many different industries, including fintech, AI, education, healthcare, and cleantech.

Is Equitybee legit?
Yes, Equitybee is a legitimate company. It is a registered broker-dealer with the Securities and Exchange Commission (SEC) and a member of the Financial Industry Regulatory Authority (FINRA). Equitybee has also been featured in major publications such as The Wall Street Journal, The New York Times, and Forbes.

Who Is Equitybee Best For?

  1. Startup employees who want to buy stock options
    Equitybee connects startup employees with investors who will pay for their stock options in exchange for a share of the future profits. This is helpful for employees who:

    • Have stock options that are about to expire
    • Cannot afford to buy their company shares out-of-pocket
    • Want to own shares in the company they work for
    • Are looking for a flexible and affordable way to fund their options

  2. Accredited investors who want to invest in private companies
    Equitybee offers private investment opportunities, including startups, unicorns, and large companies like OpenAI and Discord. It also helps investors reduce risk by diversifying their investments.

How much can you make on Equitybee?

The amount of money you can make with Equitybee depends on a few things, including:

  • The success of the startups you invest in
    If the startups you invest in are successful, you could make a 25%-50% profit. However, if the startups fail, you could lose your entire investment.

  • The terms of your investment
    These are your agreed percentage from profits and interests, and the length of the investment term.

  • The overall market conditions
    If the stock market is performing well, startups are more likely to be successful, which can lead to higher returns for investors. But if the stock market is performing poorly, startups are more likely to fail. This can lead to lower returns or even losses for investors.

Equitybee is a high-risk investment
There is no guarantee that you will make a profit, and you could even lose your entire investment. However, Equitybee has the potential to provide investors with significant returns. If you are willing to take on the risk, Equitybee can be a great way to invest in early-stage startups.

Is Equitybee a good idea?

Whether Equitybee is worth it for investors and employees depends on your individual circumstances and risk appetite.

Equitybee can be a good way for employees to exercise their stock options, but they will have to share a portion of the future value of the shares with the investors who funded their option purchase.

However, it is risky, especially for accredited investors. You don't own the shares you fund and there's no guarantee of an IPO. You could lose all of your investment. If you are willing to take on this risk, Equitybee can be a good opportunity to invest in a company before it goes public.

Equitybee for Investors

Equitybee is a safe and easy way for investors to invest in private companies, which can be a good way for you to potentially earn returns.

But before you dive in, learn more about the pros and cons, and how to get started funding employee stock options.

Pros and Cons for Investors

Pros:

  • Access to a wide variety of private companies to invest in
  • Invest in pre-IPO startups and major companies with no company approval
  • Competitive valuations for investments
  • Secure and transparent platform

Cons:

  • High fees
  • You do not own the shares
  • No reimbursement of investment if the company closes or goes bankrupt
  • The employee may breach your contract
  • Lack of control over the company

Equitybee Investor Fees

Here are the investor fees charged by Equitybee:[1]

  • Upfront platform fee: Equitybee charges a 5% upfront platform fee on all investments. This fee is deducted from the amount of money that the investor invests.

  • Carry fee: Equitybee also charges a 5% carry fee on all successful liquidity events. This means that if the startup is acquired or goes public, the investor will owe Equitybee 5% of the profits from the sale.

  • Interest: Equitybee may also charge interest on the amount of money that the investor invests. The interest rate will vary depending on the terms of the investment. It usually varies around 1-4%.

What is the minimum investment amount?[1]
Equitybee requires a minimum investment of $10,000 per offer.

Requirements for Investors

To use Equitybee, you need to be an accredited investor and invest a minimum of $10,000. You will also have to pay for a 5% platform fee (upon investment) and a 5% carry fee (if the company profits).

According to the SEC, an accredited investor is someone who meets the following financial criteria:[2]

  • Net worth over $1 million, excluding primary residence (individually or with spouse or partner)
  • Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year

In August 2020, the SEC modernized the definition of an accredited investor so that it now includes individuals with certain professional certifications, designations, and credentials. It also includes employees of private funds who are knowledgable about investing and investment advisors registered with the SEC and their states.[3]

How Does Equitybee Work for Investors?

As an investor, Equitybee connects you with employees who want to fund their stock options. In return, the employees repay you with a predetermined percentage of the stock value plus interest after a successful liquidity event.

Before any investment is made on the platform, employees are required to sign a Private Financing Contract (PFC).[4] By signing this, they agree to receive funding from Equitybee's investor network, exercise their employee stock options, and pay the associated taxes.

Aside from being a contractual agreement between you and the employee, the PFC also includes:
  • Price of the stock options
  • Interest rate on the investment (typically 1%)
  • Percentage of investor share from any future profit (typically 25-50%)

To facilitate investments, Equitybee creates a special purpose vehicle called a Fund for each investment. It then holds the PFC as an underlying security. This means that, as the investor, you have the rights to:

  • A predetermined percentage of the stock value
  • Return of principal
  • Annual compounded interest on the initial investment

Example:
Let's say you want to invest $10,000 of an employee's stock option with an interest rate of 1%. The employee also agrees to repay you 20% of the stock value upon a successful liquidity event. If the stock value goes up to $100,000, here's how much you would earn:

  • Capital or price of employee stock option = $10,000
  • Interest rate ($10,000 x 1%) = $100
  • 20% of the stock value ($100,000 x 20%) = $20,000

Deducting the 5% carry fee from the interest and the 20% stock increase on your initial $10,000 investment, you now go home with $29,095.

Investor Risks

  1. You could lose all of your investment
    If a company goes out of business or bankrupt, you'll lose your investment. This means that you won't get your initial investment back nor will you receive any interest. Neither Equitybee nor the employee is required to pay back your capital.

  2. Employee may breach the contract
    Counterparty risk is when one party fails to do their part in an agreement. In funding employee stock options, this can happen when the employee fails or refuses to repay the investor or if they fail to share the proceeds of an exit event.

How to Open an Equitybee Account

Start funding employees' stock options with these steps:[5]

  1. Register and complete your profile.
    You must provide basic information about yourself, your accreditation status, and your investment interests.

  2. Browse and select investment opportunities
    Equitybee will present you with a variety of investment opportunities. You can select the ones that interest you and choose your investment amount.

    The Investor Relations Manager will walk you through the rest of the process and answer any questions you may have.

  3. Sign the funding agreement
    You will be asked to confirm your accreditation status and sign the funding agreement.

  4. Wire your investment to the paying agent
    To transfer your funding, you can wire your investment to Equitybee's paying agent.

Do investors own the stock option?
No, Equitybee investors don't buy stock options. The investors only become shareholders after the employee purchases the stock option and then buys the shares from the investors.

Equitybee for Employees

Equitybee is the go-to platform for employees because of its flexible terms and low fees. However, there are other factors to consider when planning to get funding through Equitybee. Let's start with the pros and cons.

Pros and Cons for Employees

Pros:

  • Wide range of investors
  • Flexible terms and conditions
  • You don't have to pay back the investor if the company goes out of business or doesn't go public
  • No profit, no fee

Cons:

  • High fees from investors
  • Funding not guaranteed

Equity Employee Fees

Equitybee only requires a 5% commission fee if you make a profit from your shares. No profit, no fee.[1]

Other fees may be paid between you and the investor, depending on the terms of the offer you receive. Some common fees include:

  • An interest rate of 1% or more on the amount borrowed from the investor
  • A portion of the eventual proceeds from the sale of your shares, typically 25% to 50%.

Requirements for Employees

The requirements for employees to use Equitybee are:

  • Be an employee of a private company backed by venture capital
  • Have vested stock options or shares worth at least $10,000
  • Provide Equitybee with basic information about yourself and your stock options
  • Agree to a credit and background check
  • Pay the employee fees

The other requirements, such as a minimum tenure with the company or a minimum salary, are at the discretion of Equitybee.

If you meet the requirements, you can sign up for Equitybee and start the process of getting funding to purchase your stock options.

How does Equitybee Work for Employees?

As an employee, Equitybee connects you with investors who can help you fund your stock options or get cash without selling your shares. In return, you share a portion of the profits with the investor.

These are the three main steps you need to take to use Equitybee as an employee:

  1. Choose how many stock options to exercise
    You can choose to request funding for all your stock options or just some of them. Investors will decide how much funds they want to give you based on their interest in your company.

  2. Get funded and become a shareholder
    After getting your funding and buying your stock option, you become a company shareholder and own the shares in your name. Equitybee will require you to show proof of the exercise and keep them updated on any important information about your shares (such as IPOs, acquisitions, or other exits).

  3. Share profits with the investors upon successful exit
    When the company has a successful exit like an IPO or acquisition, you'll need to repay the investor's capital plus interest. You'll also need to give them their agreed share of the profits.

Employee Risks

Equitybee investors get a portion of your stock value if your company exits successfully. This means you will keep less money from the exit than you would if you had exercised your options yourself.

However, you won't owe them anything if your company doesn't exit or goes bankrupt.

How to Open an Equitybee Account for Employees

  1. Register and complete your profile
    You will need to provide basic information about yourself and your stock options or shares.

    Required Documents for Employees: [1]

    • Stock option grant notice
    • Option agreement
    • Company's option plan
    • Proof of your vested and exercisable option

    If you use Carta, you can simply link your account to your Equitybee profile.

  2. Submit your funding request.
    Equitybee will present your funding request to its global investor network. Funding is not guaranteed.

  3. Sign contracts.
    If a successful match is found, you and the participating investors will sign separate contracts to finalize the process.

Once you receive funding, you will need to prove that you have exercised your options. You will also be required to provide updates on any relevant information about your shares, such as IPOs, acquisitions, or other exits at your company.

Who owns Equitybee?
Equitybee is a startup that was founded in 2018 by Oren Barzilai, Oded Golan, and Mody Radashkovich. The company is headquartered in Palo Alto, California. It has raised over $100 million in funding from investors such as Group 11, Greenfield Partners, Battery Ventures, and Zeev Ventures.

How Equitybee Compares

Equitybee is one of several platforms that offer funding for stock options. Other popular platforms include:

  • EquityZen
    EquityZen is a platform that allows accredited investors to invest in private companies, including pre-IPO companies. It has a large database of private companies, and it offers a variety of investment opportunities.

    EquityZen also has a secondary marketplace where investors can sell their private shares to other accredited investors. This secondary marketplace is more liquid than Equitybee.

    Its platform fee is 3% to 5% of the investment amount and the carry fee is 10% to 15% of the profits. The minimum investment is $10,000. [6]

  • MicroVentures
    MicroVentures is an investment platform that allows accredited and non-accredited investors to invest in startups alongside venture capitalists. It has more investment options and offers including debt and equity.

    However, it charges higher additional fees than Equitybee and EquityZen.

    It charges 0.50% of the investment amount per year for the platform fee, and the carry fee is 10% of the profits. You can check other fees in their website.[7]

Bottom Line

Equitybee is a real and reliable platform that can help startup employees buy their stock options and investors get into early-stage companies. But it's more beneficial for employees and riskier for funding investors.

If you're a startup employee or accredited investor thinking about using Equitybee, weigh the pros and cons carefully. Make sure you understand the risks before making a decision.

References

  1. ^ Equitybee. FAQ, Retrieved 10/11/2023
  2. ^ U.S. Securities and Exchange Commission. Accredited Investor, Retrieved 11/10/2023
  3. ^ U.S. Securities and Exchange Commission. SEC Modernizes the Accredited Investor Definition, Retrieved 11/21/2023
  4. ^ Equitybee. Equitybee's Investment Process., Retrieved 11/13/2023
  5. ^ Equitybee. Funding Your Employee Stock Options With Equitybee, Retrieved 12/15/2023
  6. ^ EquityZen. Are there investment fees?, Retrieved 10/14/2023
  7. ^ MicroVentures. What costs might I incur when I invest?, Retrieved 10/14/2023
Equitybee

Invest in High-Growth Startups

Equitybee gives accredited investors access to high-growth, VC-backed startups. By funding employee stock options, accredited investors can gain investment exposure to private companies at past valuations. In exchange for funding the options, you will receive a percentage of future proceeds from any successful liquidity events. Subject to availability. Investments involve risk; Equitybee Securities, member FINRA

EquityZen

Invest in Private Companies

  • Invest in pre-IPO companies through an EquityZen fund.
  • $10,000 minimum investment
  • Available to accredited investors only
Goldco

Free Gold IRA Kit

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