New fund offers backdoor investment in startups

Maya Shotan-Azoulay  photo: Nofar Tagar

Operating together with EquityBee, the fund enables people to invest in options owned by employees who have left privately-held companies.

Investment in privately-held technology companies is usually restricted to angel investors and venture capital funds. A new fund, however, is raising money from the general public in order to invest indirectly in options of private companies. Capital will be raised through the Fundit website of the Headstart crowdfunding platform and Poalim IBI Underwriting and Investments (TASE: PIU).

The fund will make investments together with EquityBee, which connects employees who hold options with investors. Private investors will be able to invest NIS 10,000 in the fund; elligible investors can invest larger amounts. Maya Shotan-Azoulay, a former investment manager at the Lool venture capital fund, will make the investments for EquityBee.

EquityBee helps employees to exercise their options by funding the stock purchase in return for a percentage of the profits, if any. Employees holding options to buy shares must decide whether or not to exercise them within months of leaving the company. Funding for this is likely to require large sums, so some employees forego their options, thereby losing the ability to benefit from a future exit by the company they left. Exercising these options is also a risky investment, and EquityBee's method eliminates the risk (but it also takes part of the profit).

Besides their inability to exercise options and the high risk, employees are also uncertain about the potential of the companies in which they work. They know the management well and are exposed to problems in the company and future developments, but most of them are unaware of the financial data, and so it is difficult for them to make an informed investment decision. The problem in such an investment is due diligence, since in privately-held companies, management is not obligated to provide financial information; due diligence therefore depends on cooperation by management. Making these investment decisions is consequently a challenge.

EquityBee was founded by CEO Oren Barzilai, VP product Oded Golan, and Arik Moav. The company announced a $1.5 million financing round in September, led by WeWork co-founder and CEO Adam Neumann.

Barzilai explains that EquityBee's financing method has three significant advantages over an ordinary venture capital fund, which the company believes will increase its return: access to almost every startup in demand in Israel; dispersal of investments among a large number of startups, which lowers risk; and investment in companies at discounted valuations.

Published by Globes, Israel business news - en.globes.co.il - on January 8, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Maya Shotan-Azoulay  photo: Nofar Tagar
Maya Shotan-Azoulay photo: Nofar Tagar
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