Tech Employees Are Being Robbed Of Billions | Ep. 417 with Oren Barzilai CEO & Founder of Equitybee

0:00I've heard that over$30 billion in stock or the stock options goes unexercised every year. It can be anywhere between$30 billion, even$100 billion a year from U.S. employees' pockets. An employee left a company that back then called Wiz. That employee needed almost$170 ,000. He could not afford to exercise. And only four years later, Google completed the acquisition of Wiz for$32 billion. dollars. Orin Barzilai sold his last company for$150 million. Now his company EquityP has funded over$317 million in stock options. This conversation might change your network. That employee did not have a direct despair.

0:44He approached EquityP. About a year later, that employee... Something that's been crazy weighing on my mind recently is the fact that There's so many tech companies that are creating millionaires. These are employees. These are not even the founders, co-founders. They're not even C-suite. I know someone that just made$10 million off of the SpaceX IPO, and they've only been there for just a couple of years, which is insane. I've heard that over$30 billion in stock or the stock options goes unexercised at these types of companies every year. It's a very opaque market. Nobody knows a true number.

1:25It can be anywhere between$30 billion a year to$60 or even$100 billion a year from U.S. employees' pockets. This is a painful amount of capital that employees worked, tech employees, startup employees worked hard to earn and invest, and they are losing because the way that the system is structured. I think it's unfair. It's unjust. And this is something that, especially these days when companies are staying private longer, create significant value while they're still private. This is something that we must fix. I was telling someone recently that they shouldn't even be a founder, that they should go work for one of these tech companies, because there's the obvious risk in both ends.

2:19But at least the tech company has some sort of funding, they could get these options. What do you think about right now in terms of entrepreneurship? Should someone even go and try and be a founder with all the risk and competition? Or maybe just go work at a startup who's already got some steam and at least take advantage of some equity i i think that first being a founder is not only about um income or cash or capital so if you if this is your main incentive i want to get rich yes being a founder probably is not the best probable way to do that um now more important i think that owning equity at the right company can lead to life-changing event, a financial life-changing event that will impact you, your family, your children, and potentially your grandchildren.

3:16So selecting the right company and joining the right company at the right time is critical. And at the same time, understanding the equity that you're being granted is more critical than ever these days. So let's go back in your life. At 13 years old, you were getting paid to code, which by the way, I was coding but not getting paid. I've never gotten paid to code, sadly, which is why I dropped out of computer science school. But you were getting paid to code at 13 years old. Let's go back to that moment. What did you think your life was going to be then? I didn't. I grew up during the dot-com bubble.

3:55I loved coding. I loved computers. And I started building stuff by my own because I love doing that. And back then, they just searched for coders and they hired anyone. So I found myself at 13 years of age getting paid for code. And I vividly remember the feeling of the actual you're creating value. And then somebody else is actually leveraging this value and benefiting and enjoying that value. That kind of feeling is something that you can't forget. It's very fulfilling. The amount of freedom and confidence that you provide you. It is amazing. And this is something that I'm trying to instill my kids these days, how to create value and the gratitude and how important it is.

4:47Yes, how important it is for you. Do you find that kids now, are they still motivated by money? Are they motivated by the same things you were? Or is this something totally different? I wouldn't say that I was motivated by money. I was motivated by building. And I think this is very different. I think different kids, different humans, right? So different environments and different needs. I think that especially when you are young and curious and your brain is very elastic, we as parents should push our kids, our children to use that opportunity to find something that they're passionate about, something they love, to dig real deep.

5:31and enjoy doing that, especially while they're children. I think highly motivated by passion or like maybe you and I were motivated by totally different things. I had to work in order to get by. So that motivated me. I wanted to - Same here. Yes. Same here. We wanted to eat the next day. So we had to work. We're kids now. Many times obviously have things different. Let's go to the grub of acquisition. A lot of people that have been on this show Their company gets acquired and then they're lost. Mentally, they're worse off after the acquisition than before. How was that process for you? And how did you feel after?

6:08So we built the Pingo for many years. It was a very, very long journey. And during that journey, you know, I started the company. I was sure that we are going to be the next Google or the next Microsoft back then. and I remember hiring my first employees, offering them equity or stock options with the clear understanding that we will be successful together and you're going to get your piece of the pie and then I felt like I'm giving them a piece of my flesh and they felt like it's a lottery ticket. So the contrast was very obvious and painful for me as an entrepreneur and then the company grew bigger and became more significant And many of my first early employees and then later employees became paper rich.

7:00But this is still paper rich, not real wealth yet, but a real potential of wealth. And I was very surprised that they don't understand that and that they cannot monetize that. At the same time that VCs and investors paid and invested in the company tens of millions of dollars, employees that joined you know three four years ago and had a strike price was that is maybe 10 or less than the actual value of the share price today could not monetize that and it became even more painful when some of those employees left the company which is okay it's a natural process and they could not afford to exercise the stock options and they lost everything And then it get me to the actual acquisition because after the acquisition, we had this event and we invited the team members from all times to this event to celebrate the acquisition.

7:56And I could clearly see, hey, that guy should have got like half a million dollars. She should have got$700 ,000. These are life-changing amounts for individual employees that can now buy a home without paying a mortgage in cash or anything else. And I clearly remember the feeling that this is not fair. Somebody should help them. Somebody should fix the system to make sure that those employees that built the company, that we could not do it without them, okay, should get their piece of the pie, should get whatever earned. And that was one of the leading motivations that planted the seed of Equity B in my brain.

8:36So when you started Equity B, I see the problem that you were solving based on your firsthand experience, which I think makes a great entrepreneur is when you really live something and you're like, oh, my gosh, this is a problem. I'm going to solve this problem. But we don't always know how big the problem is. When did you realize that this was massive beyond just the experiences you had? So first, it was the seed in my head. And I like building. And one of my challenges that I defocus a lot. So in order not to defocus, every time that I have something that I'm excited about, I just write it down, I put it in a folder, and then I feel like I did something and then I can move on and not spend more time on that.

9:17So the concept of EqualDB was in my head, I think, since 2013 or 14, very early on. And then I kept thinking about it. and at this random event at a at a tech event i met a friend of a friend of a friend and he was like yeah i'm about to leave that company i need like 200 000 to examine stock options or i'm going to lose everything i don't know what to do i worked too hard for this i really i could really feel like the the pain struggle and i understood that because i i spent a lot of time thinking about it so i told him you know what i will help you i was you know a institute entrepreneur by the already very connected i knew investors i knew the system so i decided to come up with a solution to help him i did that and then he called me he was so grateful and i really remember that feeling that gratitude how fulfilling it was then he brought another friend and that friend brought another two other friends that needed help and i connected them with investors We funded them.

10:27We made sure that they will own their piece of the equity and they will be able to pay back the investors who supported them following a liquidity event and everybody will benefit. And it was very clear to me that it's actually very fulfilling and that we are creating a very positive impact on the world by actually spreading this wealth. Then, only then, I realized when I started looking into numbers and Carta started publishing reports, okay? And that number varies, but between 50, it varies in the years, it goes ups and down based on the market sentiment. But between 55 to 70 % of in-demand stock options goes unexercised every year in the U.S.

11:09This is a painful amount. And when you add it to the fact that there are about 6 million startup employees in the U.S. alone, you understand that this is a huge, huge opportunity. and by spreading the world between those potential six million tech employees you can create a very very positive change in the world and this is something that we are very very proud of and since our inception we've seen many stories of how we've created this impact and this is something that we are very very proud of wow i mean that's amazing i didn't realize how big the problem was I just know a lot of people that worked at startups.

11:51I worked at startups. I never exercised anything. Looking back, I wish I knew you 10 years ago. We didn't exist back then. You obviously solved this massive problem. Why do you think this problem hadn't really been solved already? I think that the main reason is that in the past, maybe 20 years ago, companies on average used to spend about four years from inception to an IPO. So two factors that employees, if an employee spent about three and a half years or three years in the company, they have a very good chance to see it through. This is one thing. The second thing is that the value, the cost of external install options, because the value that is created while the company is still private, was way significantly lower.

12:35Today, you know, I think SpaceX was founded in 2002 or 2003. It's more than 20 years of being a private company, not only now when public. companies are staying private significantly longer, more than 12 years, or in this basic example, more than 20 years, and generate most of the appreciation in value while the company is still private. And we don't really expect employees to stay in the same company for 20 years, not even 10 years, right? So those two paradigm shifts, I think, push this problem to become significantly more painful. and the market to become significantly bigger. And with the current momentum, which companies will keep staying private longer, we will need to see this solution and other solutions actually growing in the private market to provide liquidity and other solutions for these tech employees.

13:35Yeah, I've heard some stats that people are leaving like one, two, three years. Like they're not even staying long at all. It's just a totally different mindset compared to before, like stay at one company, retire at that company after 40 years, right? Now people are like, get it, get to the next one, get to the next one. What would you say is something or two things that every employee needs to know about exercising their equity? I would say first that before exercising, joining the right company in the right time can lead to a life-changing event. So please do your homework. understand which companies you're joining, which company you're joining to, what is the potential value of that company, what is the chances to be successful, like the magnitude of the company, the size of the company, the stage of the company.

14:23You should do your homework. Then, once you decided that you want to join a certain company and you were offered to join that company, you need to understand the value of the stock option that you're being offered. Like you compare salaries, you need to compare the equity grant. Okay? Once you're part of a company and you're doing great in that company and the company is growing in value, you need to understand that owning stock options is not a share. You own a right to buy a share at a company at a certain price. But in order to own that share, if you will not be there after a liquidity event, you need to actually pay that price and the taxes that are connected to that.

15:04Now, there are many technical stuff that you can do. You can exercise early to become more text efficient. You can exercise early while you're still in the company in order to get some early liquidity and lock the share price. But the first thing is to become aware of that, to understand what company, like what Equity B and other solutions can offer you, and to make sure that you're making an educated decision. Compare the offers that you get from which companies to join, the value of that equity and to make sure that you are aware on how to retain and leverage that equity to maximize your compensation.

15:45Is there an employee post starting EquityBee, because I know you shared some examples pre, was there an employee that a story or somebody that reached out to you or you got wind of that they worked with EquityBee or leveraged EquityBee and it was life-changing there are many there are many employees that use equity b and experience life-changing events i think that but i i don't think it's about necessarily about the money it's more about we are a mission-driven company and the positive change that we are making in the world so i'll give you two examples okay um the first example i think was 2002 2022 the market crashed.

16:26At the end of 2022, the market crashed. There was no liquidity, no funding grounds. And an employee left a company that back then called Wiz that wasn't as well-known as it is now. That employee needed almost$170 ,000. He could not afford to exercise. He approached EquityB. We funded him at a time of like a funding winter. Okay. And only four years later, Google completed the acquisition of WIS for$32 billion. Okay? After paying back the investors that did very well as well, that employee netted$5.2 million out of that exit. Okay? This is a life-changing event. Okay? And this is something that we are very, very proud of.

17:18But maybe I can tell you another story. This is actually something that I'm very, very proud of because this is an individual that was an immigrant to the U.S. He was a developer in a quantum computing company. He needed about$300 ,000. This is like shortly after we launched in the U.S. back in 2020. He needed$300 ,000 and he didn't have a dime to spare. Okay. You know, sometimes employees tell us, hey, I need like$150 ,000. I will pay$10 ,000 of my own pocket and you'll give me$140 ,000. Okay? That employee did not have a dime to spare. And we funded that employee. About a year later, the company went public.

18:02Okay? And that employee needed just over$3 million. But the story does not end there. That employee that did not have a dime to spare before just needed$3 million. And that employee used a portion of that money to create a non-profit in India to provide dental care for kids. Okay? So those kind of stories of something that we've started, as you know, it started from a simple idea in my head many years ago to a full cycle company that provides the creative to take employees that thanks to their hard work and our solution now experiencing life-changing events and they're using that capital to make the world a better place, this is something that I can't put towards how proud we are and the kind of energy it provides us to push us to go forward and keep grinding to support more employees.

19:11We know that many of them will experience such events and will be able to move it forward. I think we share that in our missions, your mission and then my mission. When you help somebody and that amplifies to many other things, that's really how you can impact millions or billions of people around the world is leveraging that amplification. That's what you guys are doing. I mean, 5.2 million, 3 million. These are huge numbers. Like you said, they could retire, which leads me into something I've really been stewing on. I've really, really been thinking about this because I wonder how this is going to change all jobs, all companies.

19:51When somebody gets something like that, somebody gets a windfall, and some of these people might be in their 20s, even early 30s. Let's say you're 28 years old and you get$5.2 million. How is this going to change the dynamic of employees? You know, this is a very philosophical question. Yeah, we can go deep. I would say that those two individuals from that example were a bit older. Okay. But I think it's fair. I think that once you manage to earn sufficient amount of money and you have the privilege that you can keep working, but only from things that you're passionate about, I believe it is actually better because if you're doing something that you're passionate about, you're actually going to do it better.

20:44You're going to become an expert because you love what we're doing. And you'll keep thinking about it. You'll keep perfecting this. So I don't know too many people that retired early. I know many people that managed to get significant amount of capital while they're still young. they took a few months off and very fast came back to the arena. I think that people that are building, it's not only about money, it's about winning, it's about creating value, and you have this feedback loop about fulfillment and success and positive impact that you're creating. So I don't know too many people that retired early, but I do know many people that are now significant pillars in the industry because they are investing in new companies, they are advising entrepreneurs, they are building new companies, they became executives in other significant companies.

21:44And that's what I'm seeing. People are back in the arena, people are back building, especially today when things move much faster with AI. It's more exciting than ever. Wow, yeah. A lot of people are going to be living the mission driven life. For some reason, I can't help but think of the book, The Sapiens. Next time you and I will have to go 30 minutes. We're going to go really deep down the rabbit hole. Let's do it. Let's do it up. Because we don't even have enough time for me to tell you about the things I've been thinking around this, who will even be employees. But it sounds, though, that this could open up a totally new class of investors because they didn't come from the investing world.

22:23They were able to create wealth. How do you balance, though, the investor side and the employee side? So we are a very mission-driven company. We are very focused on providing the employees with the capital they need to become shareholders and participate in the success of the company they have built. In order to provide them the capital, we need investors to support them. The investors are our partners. and we need to make sure that they will be able to access great companies at attractive terms to make sure that we'll be able to generate returns and put it back to work with more employees. So this is the way that we think about it, to balance that.

23:05But the core mission, the focus is very clear. We need to support as many employees as we can to enable them to participate in the success of the company they have built. They worked hard for many years. they were promised a piece of the pie and our mission is to make sure that you're going to own their piece of the pie i love pie what's your favorite pie by the way to be honest i'm not a very i don't have a sweet tooth so okay okay i am in the u.s so i can say pizza okay pizza pie i like okay you know what i just had pizza in france i think it was better than the pizza I had in Italy. I don't know why.

23:46Something about it. I'm not sure. I think that's like an illegal statement in some countries. Don't tell people in Italy. When I was in Greece, they all told me that they had the best olive oil. They're like, Italy does not have good olive oil. We do. And I'm like, okay. They also said they have the best baklava. And, you know, Turkey says they have the best. Food is complicated. It's a complicated subject. So I'm curious, what is some of the excitement right now? Like what companies that you're finding employees are wanting to exercise or are just everyone's just talking about? So I would say that employees from all companies want to exercise all the time.

24:27Okay. So employees from all companies, even if it's SpaceX or Entropic or OpenAI or companies that you never heard of. Okay. Employees need a capital to participate in the success of the company I'll build. From the demand side, from the investor side, at any given time, there are usually four or five companies that all investors are looking for. It used to be SpaceX. Today, you can think of about, obviously, Anthropic, OpenAI, Unreal, Neuralink. But the secret is that those companies that everybody wants right now usually very expensive. Supply and demand. right? And historically, the best returners, the best returns for investors were generated from the companies that are not well-known or before they become well-known, before they become significantly expensive.

25:26And obviously, it's very hard to know which companies today will become the next Ointropic company as of tomorrow. So we actually offer our institutional investors and family offices we work with, sophisticated investment instruments that enable them to diversify across many companies, and actually manage to also, by doing that, find those winners of tomorrow before they are aware of them specifically. If we could all go into the past, you know, if we had the crystal ball, I would be a crypto billionaire, probably. But it is a type of crystal ball because when you provide employees with funding for their stock options, you're actually paying the price of the company when the employee joined the company three or four years ago.

26:15So in a sense, it's very similar to investing with a crystal ball because you pay today the price that was great for three or four years ago. and that is creating a very interesting opportunity both for investors and to the employees that should exercise the stock options because if I have a stock option to buy Google at the current market price, I would argue that it's not very valuable because I can just buy the share or the value is very clear but when you actually have a stock option that is 50 % or 70 % discounted, the strike price compared to the current share price. It is actually something that as an employee and investor, you must look into because it's actually a very competitive opportunity.

27:10Man, I can't stop thinking about the whiz, like$5 million. I mean, that's, I think I'm just going to like close all my business. 5.2 now. 5.2 million. I think I'm going to move to Silicon Valley. I'm going to shut everything I'm doing down. and I'm just going to work for some startup. I think I'm going to go all in, and I'm doing the wrong thing. But a year ago, I never even heard of investing into private companies. I only knew about the stock market, which I've been in for a long time. And when I heard about this a year ago, there was a woman who said, this is the biggest place of investment in the near future.

27:44She said that a year ago. So what I saw EquityBee and what you all were doing, but CEO and founder of EquityBee, Oren Barzilai, man, I learned a lot. I can't wait. We got to reconnect. Every time a new company goes public, I'm going to send you a message because I'm just so fascinated right now. There's like 15 companies that are on my mind. Thank you for having me. I would just add, it's all about going public, M &A and tender offers. We support employees that can benefit from all of those liquidity channels. Happy to be here. And it was a blast. Thank you.