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EquityBee is different from many of the other startup investing platforms on the market. This is largely because they do not utilize a crowdfunding model and they allow investors to purchase shares in well-known companies like Betterment.
The EquityBee model revolves around finding early employees in startups who want to exercise their stock options. Then investors are able to provide those employees with capital to exercise.
This allows investors to access well-known private companies and to do so at a discount.
- Invest in well-established companies
- Generally less risky platform
- Buy shares below market price
- Lower upside potential
- Management fee paid upfront
- Accredited investors only
Trillion-dollar companies like Facebook and Amazon were once scrappy startups that were unproven and generally unknown. However, early investors in these companies have gone on to make hundreds of millions of dollars from investments of only a few thousand.
Fortunately, opportunities to see returns like these still exist today and have never been more accessible to the everyday investor. Crowdfunding startup platforms are popping up every year that allow the little guys to get access to high-quality deals.
One of the newer startup investing platforms that is reinventing the way retail investors invest is called EquityBee. EquityBee was founded in Israel with the mission of creating unique startup investment opportunities for the masses.
In this article, we provide a comprehensive EquityBee review and highlight the features of the platform and how to use it to invest in up-and-coming startups.
EquityBee Review: Platform Highlights
- Investors on EquityBee are able to invest in startups by helping early employees exercise their stock options
- These options contracts allow investors to purchase shares at a discounted rate
- Many of the startups available on EquityBee are well-known companies like Betterment
- As generally larger companies, there is generally less risk and lower returns compared to other startup crowdfunding platforms
- Investing in larger companies increases the odds that the company will have a liquidity event
- Currently only accredited investors are able to invest on EquityBee
What is EquityBee?
In 2018, three childhood friends noticed an issue. Many early employees at startups had stock options they wanted to exercise, but lacked the cash available to do so. This inspired the idea for EquityBee, a platform that would allow everyday investors to help these early employees to exercise their stock options.
In exchange, the investors get to share in the upside of the company and purchase shares at a discount.
What Are Stock Options?
To understand the EquityBee investment model, it’s important to have a good grasp of stock options. Often times, initial employees will be given stock options as a portion of their salary or as bonuses. Startups choose to reward employees with options because it doesn’t cost them anything today, and it aligns the employee’s goals with the goals of the company. But how do they actually work?
Stock options give holders the right to purchase a stock at some point in the future at a given price. This price is called the strike price and is set when the options contract is created.
For example, say Joe gets a job at Company X and is the 5th employee. In order to keep Joe invested both mentally and financially in the company, Joe’s boss gives them 10,000 stock options for Company X. These options have a strike price of $100 per share. This means that Joe now has the ability to purchase 10,000 shares of Company X stock for $100 each.
Now flash forward 5 years, Company X stock is now worth $200 per share. If Joe takes advantage of those options and buys 10,000 shares for $100 each, Joe can essentially double their money. However, this would require Joe to have $1,000,000 in cash ready to invest.
How Does EquityBee Work?
EquityBee allows for an early employee, Joe in this case, to list their stock options on the platform. Then investors like you and I that want to invest in Company X can supply Joe with a portion of the $1,000,000 they need to exercise their options.
In exchange, investors are able to invest in private companies and do so at a discount. Remember, Joe’s options allow them to buy shares at $100 each when they are worth $200 so investors are able to take advantage of that difference.
At the moment, the platform is only available to accredited investors.
What Is An Accredited Investor?
The SEC coined the term “accredited investor” as a way to protect everyday investors from speculative or risky investments. If the SEC determines that an investment involves substantial risk or requires substantial knowledge, they may restrict that investment to only accredited investors.
In order to qualify as an accredited investor, there are a number of different options.
- An income of over $200,000 if single, or $300,000 if married.
- A net worth of over $1,000,000 excluding your primary residence.
- Passing a financial services exam like the Series 7 or Series 65.
If an individual does not meet one of those criteria, they do not qualify as an accredited investor and will not be able to invest on EquityBee.
There are a number of useful features that make EquityBee unique from many of the other startup investing platforms. Investors can take advantage of these features to make more informed decisions about the startups they are investing in.
Based on the last known share price, EquityBee will automatically calculate an investor’s hypothetical return. This is called the Closing ROI. The closing ROI assumes an immediate liquidity event for the company at the most recent share price.
A liquidity event is any event that allows shareholders in a private company to sell their shares. The two most common of which are an acquisition or an Initial Public Offering (IPO).
If the company experienced a liquidity event at a higher share price, the ROI would be greater and if the share price had decreased it would be lower. This is a useful tool for investors to get a quick estimated return on their investment.
Whenever you are investing in a company, it’s very important to have a good understanding of the company’s financials. EquityBee provides information on all of the past fundraising rounds by pulling information directly from Crunchbase.
Additionally, the platform lists all of the other investors in the company as well as valuation information.
Returns for investors on the EquityBee platform can be somewhat confusing and depend on the particular company. Investors will receive returns in three different ways: return of principal, annual interest, and percentage of share appreciation.
If there is a liquidity event, investors will first receive back their initial investment. For example, if you invested $10,000 on EquityBee, you would receive that initial $10,000 back.
From there, investors will receive an annualized interest rate depending on the particular investment. In all of the companies we examined, the rate was a flat 1%. So if you invested $10,000 in a company, and the liquidity event took place in 1 year, you would receive $100 in interest.
The last portion of your return is where the majority of the upside resides. As an investor, you will receive a percentage of the share appreciation in a liquidity event. This percentage will also vary from deal-to-deal, but in general, it will be between 20% – 50%. This means that if for every 100% the company grows, your investment will see another 20% – 50% increase.
Overall, this is a somewhat complicated structure for returns. This makes the Closing ROI a very useful metric as it incorporates all 3 of these elements into one simple percentage.
The EquityBee fee structure is very simple when compared to many of the other startup crowdfunding platforms on the market.
In order to invest in a startup on EquityBee, you must pay a 5% management fee upfront. This covers the administrative costs of facilitating the investment, as well as the platform costs.
There are no additional fees or hidden fees on the platform.
- Ability to invest in startups below the current share price
- Listed startups include well-known companies like Betterment
- Generally lower risk compared to other startup investment platforms
- Currently only available to accredited investors
- Larger startups generally offer less upside potential
- Management fee paid upfront
EquityBee Review: Final Thoughts
The EquityBee platform is quite unique in the way it allows early employees a way to exercise stock options. At the same time, it allows everyday investors the ability to access high-growth startups that would be extremely difficult to access otherwise.
At the same time, investors are able to purchase at a discount due to the nature of options contracts. This makes for a compelling way to invest in well-known and earlier-stage startups alike.
The primary downside of the EquityBee platform is the accreditation requirement. Investors that do not meet these thresholds are unable to invest on the platform. These folks will need to look at the best startup crowdfunding platforms for non-accredited investors in order to get invested.
However, there are constantly new deals listed on EquityBee so it doesn’t hurt to create an account and set up email notifications to be notified any time a new deal is listed. Many of the well-known companies become fully invested quickly so it’s important to stay on top of new deals as they arise.