Equitybee Review: Startup Investing And More

What Is Equitybee?

What Does It Offer?

Equitybee gives investors exposure to privately held startup stock when they help an employee buy the stock through an Employee Stock Purchase Plan (ESPP). Rather than buy shares directly, investors fund employees exercising their options and participate in future gains if the company succeeds. The arrangement helps startup employees maximize their compensation while investors gain the possibility of future growth.

Invest In High-Growth Startups 

When you invest through Equitybee, you are not directly purchasing startup shares yourself. Instead, you're entering into a legal agreement tied to the future value of the employees shares. 

If the startup eventually goes public, gets acquired, or experiences another liquidity event, investors receive their original capital back plus a negotiated share of the upside. The structure is different from traditional venture capital investing because investors are funding employee stock option exercises rather than directly purchasing equity from the company itself. 

Help Startup Employees Get Full Value from Their ESPP

An employee at a publicly-traded company, such as Amazon or Netflix, may be able to participate in an ESPP. But these employees can turn around and sell their shares on the market. Even if they have to wait a year to sell, the shares are very liquid, so most employees can take advantage of the ESPP.

Employees at high-growth startups don’t have the same luxury. The privately held stock can’t be sold on a stock exchange, so employees have to wait for a liquidity event to realize value from their stocks. Startup employees may not be able to afford to keep such a large part of their net worth tied up in private stock, even if they believe in the future value of their company.

Equitybee investors help you take advantage of the ESPP. Investors give you money now, so you can invest in the ESPP. At a future liquidity event, you give the investor a share of the future value. Liquidity events can include acquisitions, mergers, or going public.

Potential to Earn Interest and Enjoy Stock Growth

Equitybee investors don’t own stock. Instead, they own a share of the future value of a stock. If an employee’s company has a liquidity event, the investor receives an interest payment plus a percentage of the growth. The investor and the stock owner can decide whether to settle their arrangement with shares of stock or cash.

Is Equitybee Risky? 

When you invest with Equitybee, it's considered venture-style investing, so you need to approach it with caution. Many startups fail, and other may remain private for years longer than originally expected. And some companies may never experience a meaningful liquidity event at all. 

As an investor, you may tie up your money for a long period of time and still lose some or all of your invesment. Liquidity is also limited. Unlike investing in publicly-traded stocks or ETFs, there is typically no active secondary market where you can easily sell your position if you change your mind. This is one of the reasons that Equitybee is limited to accredited investors. 

$10,000 Minimum Investment

The minimum investment on Equitybee is $10,000. Some funding requests may be larger than $10,000.

Must Be Accredited To Invest

As mentioned, Equitybee is only available to accredited investors. In the United States, accredit investor status generally requires the following: 

• Annual income above $200,000 (or $300,000 jointly); or, 
• A net worth of $1 million or more, excluding your primary residence 

These restrictions exist because of the high-risk, speculative, and illiquid nature of the investment. 

Are There Any Fees?

Investors are required to pay two fees. First, you pay an upfront 5% platform fee whenever you invest. A $10,000 investment will be a $9,500 investment plus a $500 platform fee.

You can also expect a backend fee if your investment successfully liquidates. After an exit, you owe a 5% “carry” fee to the platform. This means you pay 5% of their investment back to Equitybee. For example, if a $10,000 investment turns into $50,000, you’ll make a $40,000 profit. You owe 5% of that profit ($2,000) to Equitybee.

How Does Equitybee Compare?

Equitybee offers a unique opportunity for venture capitalists to do well by doing good. These investors only gain exposure to high-growth startups, but also help employees at these startups maximize their compensation. The investment opportunities on Equitybee skew “late-stage” meaning they have a good chance of exit. 

Compared to traditional venture capital funds, the fees are relatively reasonable. There is no annual fee and the carry fee is just 5%. Many VC funds charge a "2 and 20" model, meaning you'll pay annual management fees in addition to 20% in carrying fees. 

How Do I Open An Account?

To get started as an investor with Equitybee, you'll need to sign up its website and confirm your investor accreditation. You'll be asked some personal questions, which provides Equitybee with more information about your investor profile. Once your profile has been set up and you've provided the necessary identification, you'll be able to credit an investment account and get started. 

Is It Safe And Secure?

From a cybersecurity standpoint, Equitybee uses standard encryption and other security protocols to protect your personal and account information. Securities are offered through EquityBee Securities, LLC, which is an affiliate of Equitybee, and FINRA Member. 

From an investment standpoint, it's important to remember that the types of investments offered by Equitybee are inherently risky. While they are only offered to accredited investors, they should never be considered a core portfolio holding. There is a very real possibility that you will lose money, and many startups never generate liquidity for investors, even over the long term. 

How Do I Contact Equitybee?

Equitybee has a headquarters in Palo Alto, California, and Tel Aviv, Israel. The U.S. customer service number is 650-847-1149. If you have questions you can also email Equitybee through the company’s online contact portal.

Is It Worth It?

You may find profitable investments on the Equitybee platform, but it is currently a relative niche platform in the venture capital investing world. Venture capital investing is a numbers game, and broader exposure typically yields better returns. 

That said, Equitybee is not designed for everyday investors. It has high investment minimums ($10,000) and limited investment opportunities, making it difficult to develop a diversified venture capital portfolio. If you don't qualify as an accredited investor, you may want to consider a platform like StartEngine, which is available regular investors. 

If you're an accredited investor who understands the risks and wants targeted exposure to later-stage private companies, Equitybee provides a unique way to participate in startup growth without directly joining a venture capital fund. 

I think the platform's employee-focused model adds an interesting angle. Investor's aren't just betting on startups. They're helping employees unlock equity compensation they may not otherwise be able to access.