Startup employees fearful of layoffs are looking for quick ways to exercise their stock
- EquityBee is a cloud platform where startup employees can find potential investors who could help them exercise their stock options.
- Founder Oren Barzilai said the platform has seen a spike in interest from startup employees worried about layoffs due to the coronavirus crisis and the economic downturn.
- "Some of them already know that there are going to be layoffs because the company told them," he told Business Insider. "Some of them just feel the atmosphere and they're concerned."
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Entrepreneur Oren Barzilai is the founder of EquityBee, a cloud platform where startup employees can look for potential investors so they can exercise their stock options.
He said the platform has seen a big spike in interest in the last two weeks when the coronavirus crisis started to escalate.
"We are experiencing significant interest in the US from employees who just left their jobs or think that they're going to be leaving very soon due to recent events, and they're seeking help with exercising their stock options," he told Business Insider.
The trend points to heightened worries about the impact of the pandemic and the recent market selloff in the startup world, amid concerns that the downturn could lead to mass layoffs.
Barzilai said EquityBee has been in touch with startup employees who appear to be bracing for the worst.
"Some of them already know that there are going to be layoffs because the company told them," he said. "Some of them just feel the atmosphere and they're concerned. … Some of them have already left or have a last date and will be leaving soon. Most of them are just concerned and they know that they will likely leave soon."
Many of these employees have been compensated with stock options that could potentially translate into a hefty payday when the company goes public or sold. However, many startup employees don't have the cash to exercise their stock options, and they typically have a limited time, usually 90 days, to exercise their options once they leave the company.
This is where companies like EquityBee come in. The platform offers startup employees looking to exercise vested options a way to connect with would-be investors who may be willing to help finance the exercise. The investors and employees remain anonymous on the platform.
The investors take a percentage of the proceeds from the shares when the startup either goes public or is acquired. The cut ranges from 5% to 40%, depending on startup.
Another firm, Employee Stock Option Fund, offers nonrecourse financing to startup employees who want to exercise their vested options. Co-founder Scott Chou, said he hasn't seen any change based on an anticipation of a "massive coronavirus-related layoffs."
But there could definitely be a major impact on the startup world.
"People will have to cut back and they won't be able to fundraise," he said.
But Chou said he has seen a drop in inquiries related to the pricing of startups from employees who expect their companies to go public or be acquired soon. This suggests a growing awareness that startups, including " hot companies presuming that a gigantic IPO is around the corner," are less likely to have a significant liquidity event.
"That's way down," he told Business Insider. "That's my immediate observation."
Got a tip about EquityBee or another tech company? Contact this reporter via email at bpimentel@businessinsider.com, message him on Twitter @benpimentel or send him a secure message through Signal at (510) 731-8429. You can also contact Business Insider securely via SecureDrop.