altshare Annual Equity Report 2022

The full report for ownership shifts and changes in the private sector

Overview

This year has been complex for investors and shareholders. As there was a seemingly constant drop in the stock exchange market, many claimed 2022 to be unwelcoming for new start-ups and investors. We decided to let the data speak for itself and created this report to show everything that happened this year. Then we compared 2022 to the years before and during Covid-19 and saw what they have to show.

 

We gathered data from over 3,000 companies under altshare’s platforms, around 20k deals and transactions, and services are given, for an accurate view of the start-up nation. Although we fanatically keep our customers' privacy, the data presented will show trends and overall information with a drill-down to the field level. 

 

Most data was collected about companies based in Israel, yet we claim the information is a sample that represents the high-tech industry worldwide. Israel, for many years, is among the top countries called start-up nations, and its high-tech industry can be paralleled to most leading countries. 

 

The micro shareholders: Employees

Although 2022 has shown a decrease in the overall stock exchange market in almost any aspect, we decided to tackle it from the employee's perspective and to see how they reacted this year. To give a complete holistic report regarding the employees, we divided the research into three main segments:
Allocations, what is the amount of stock options out of the entire company's equity attended for employees? and what they actually received.

 

Exercised, of the allocated options, how many of them did the employees actually exercised? What profit did it make for them? And did employees exercise before or after they leave the company?

The third segment contains all demographic information that might indicate how the start-up nation treats age and gender differences.

 

  • Allocations

 

Total pool size

In most cases, the pool size is considered to be around 10%, but that is not the case in reality. As you can see, the pool size consists of about 19% of the company’s total shares, and there are some good explanations for that. The first is the fact that more and more founders understand that in order to attract the best they need to offer more. Companies need to offer them more than ever to sign in with star programmers and other key employees.

 

The second reason relates to the first but in a different way, as founders look to recruit the best they also want to show the already-signed employees they invest in them as well. By increasing the pool size, employers open the possibility for more employees to become micro stakeholders and to feel a sense of ownership in the company.

 

options pool vs shares

 

That being said, here you see that the actual stock options being distributed go around the classic 10%. That can indicate that although founders want to allocate more shares to employees in theory, they back down when the time comes. Understanding why investors put aside such a significant amount of shares to employees yet do not distribute them can be the key to better the employer-employee partnership inside the high-tech industry.

 

  • Exercised

 

exercised stock options prior/post

 

Looking at the grand total of employees exercising their options, we see that around a quarter of all exercising employees do so after they leave the company. There are three main reasons for employees to exercise their options post-unemployment: 

 

  1. Gather funds - sometimes the cost of exercising stock options can be costly for the average joe. If a person received $4k of stock options with a $10 exercise price, to receive all 4k of shares he needs $40k cash, for more than some, this is an amount that is hard to come by. Former employees who still believe in the company's growth will want to hold shares no matter what. They might gather the funds to pay for their vested options for some time and manage to gather enough only after termination.  Or when termination was announced they stepped up the game as they realized it might be their last chance to become shareholders.
  2. Options are about to expire - most grant letters include a grace period of 90 days to exercise the vested options. When the clock is about to tick its last tack the FOMO kicks in and people buy their options before it goes to waste. When they were still employed there was no rush to buy the options into shares but now that the options have a countdown it’s a game of use it or lose it.
  3.  Up-sale opportunity - when the former employee sees that the company is on the verge of an exit or an IPO they probably will decide to buy all vested options to immediately sell and profit. Although this might be the rarest of the reasons to exercise options post-employment, it should be stated as some cases do fit here.

 

After understanding the source for former employees to exercise stock options, let us scope in and compare what was the percentage of each group over the past 5 years:

 

exercised options

 

The number of employees exercising their options post leave has been dropping in the past few years with an about 4% rise this 2022. Although it is too soon to decide if the slight increase is the beginning of a trend, stay tuned for the 2023 annual report. In about a year we’ll start seeing how these post-Covid-19 years look when the dust settles.

 

What can be said now? The two years of the Corona Virus definitely affected the employees as well. They might not believe in their company’s growth as much or did not have the necessary funds to exercise. Either way, fewer employees bought their options after they left each year since 2018. 

 

exercised post vs canceled

 

Focusing on 2022, it seems that out of employees receiving stock options, more people exercised their options post-leave than those who let them go. This almost 10% difference between canceled to exercised options post leave, combined with the  4% rise in exercised in  2022 shows a surprising sprout. It suggests, that although this year’s stock exchange has seen better days, the employees are presumably starting to reestablish their trust in the companies they work for. 

 

Employees are always considered to be right on the main artery of a company, feeling every heartbeat. Therefore, they will be the first to show their trust or take it from a company, when former employees act positively it means even more. People who part ways with a company yet still invest in it might suggest a true belief in the company's success.

 

This overall data of employees increasing their investment in the companies can give founders and CEOs a hint for what might come. As employees are considered to be important, if not the most important asset to a company, an increase in their trust implies a positive finish to a harsh year.

 

  • Demographic overview

 

men vs women on allocations

 

Unfortunately, it’s not surprising to see that more men receive stock options throughout almost all ages. What is surprising is that although many think the high-tech industry is a hub for younger people, the peak for allocations is between the ages of 50-53. That being said, women tend to suffer an increase in allocation difference as their age rises.

 

Women's allocations compared to men’s, show a relatively small difference at younger ages and even a higher average in their mid-20s. Yet when we reach the fourth decade of our lives, it seems that the gap deepens as age increases. For men the significant drop in allocations starts after the 50s peak, for women, on the other hand,  it begins a decade earlier, in their 40s.

 

employees holding shares

 

When concluding the data, the difference becomes clearer: more than half of the people receiving stock options in 2022 are men, yet only a pinch over a quarter are women. It seems inequality is still blooming and although we see more employed women in key positions, still for every two men receiving stock options, stands one woman.

 

Covering this gap is not difficult and a few practical solutions were suggested, one from our very own CEO Ronen Solomon. He offered to set a non-negotiable set of rules written in the grant letter. Rules that, amongst others,  define exactly how many stock options an employee receives in each position. To allocate by position might not give the flexibility granting now holds but it can help eliminate discrimination in this field.

 

The first shareholders: Founders

How did founders react to the market panic of 2022?  We measured it by checking how many dreamers we had that opened companies compared to the harsh reality check. We asked how many survived 2023? How many managed to raise funds? And how many went public? Then, we answered.

 

  • Born

 

founded in Israel

 

It seems that entrepreneurs were discouraged to try and start this year. Companies opened this year reached less than a third of the number of companies opened last year, and less than a quarter of 2020. We see that among the founders of 2022 most are newcomers, in the previous years, the experienced entrepreneurs were the majority of founders each year.

 

The reason that more experienced entrepreneurs' significantly dropped in this year's start-up open number, can be that they just took a step back. This might be because they lost too much during the past two years and now took some time to recover.  Another reason can be their understanding to hold back when discouraged investors reduced their new investments to take the least damage from the stock exchange’s drop.

 

  • Raised

 

capital raised avg

 

This year's last funding round in each industry shows that overall the entire start-up industry was less successful in acquiring funds. The highest growth for raising was Aerospace and Aviation, yet the least successful with a drop from a record to the last of the bottom was FinTech. 

 

Industrial-Tech and Smart Mobility also showed a significant and surprisingly Agri-food-Tech showed a significant drop. That fact is surprising because two out of five of the start-ups with the most potential in Israel for 2022 by Calcalist were in that field.

 

To put FinTech aside, the industry seems in an overall balance, which in itself is a surprising fact as this year was considered difficult for fundraising. The number of investors might have dropped this year but the general raised amount looks almost even between the last rounds of 2021 and 2022.

 

  • Finished

companies closed and created

 

The gap between start-ups founded and closed in the past few years suffered the most out of the Covid-19 pandemic. 2022 is the first year in a while that shows negative growth in the start-up industry.

 

That high number of companies closing can be attributed to the pandemic after effect and the data do support this claim. Many companies report that they just couldn't keep their head above water after the pandemic hit and the drop in investors' interest.

 

The expert shareholders: Investors

Investors and VCs aren't scared easily. They usually keep a close tab on the market, and the more experienced ones have seen a few ups and downs in the stock exchange in their life. To understand how they reacted and acted in this past 2022 we checked how many new investors joined the game and examined what amount they invested as well as the more experienced ones.

 

investments number

 

The large increase in investments in 2021 was attributed to an extraordinarily rare year in which many companies crossed the unicorn line (about 46 in Israel alone). The decline of investments we put our eyes to is of 2020 and 2022, this drop is considered small and means no real change was made.

 

Although we do see a small decline, it seems that the market status did not scare the investors as much as some might think. Entrepreneurs did report that it has become more difficult to raise funds yet the data show that many investments were made. These two sides are still from the same courter as it is safe to assume investments were made with extra caution. 

 

It means that entrepreneurs needed to better convince the investors and persuade more. Investors' hands became numb on the trigger, but as it shows, they did fire with merely a small decline.

 

total invested

 

The difference in invested money does paint an even better picture, putting the uniquely incredible 2021 aside, the funds raised in 2022 were higher than in 2020 by almost 50%. This data shows that although the stock exchange market has seen better days (and years), and although investors did give a hard time to entrepreneurs, they eventually invested more.

 

Evidentially, the stock exchange market had a rough year, the markets seem low by so many levels yet those that have seen a thing or two were not impressed.  Arguably almost the same number of investors invested over the past year and with more cash than in 2020.

 

The ‘behind the scenes’ of shareholders: altshare

 

  • About altshare

 

altshare is based on decades of experience as a leading Israeli provider of trustee services, stock administration, compensation plans, and a unique SaaS platform. We are trusted by more than 3,000 companies and organizations, over 100 VC firms, and 60k+ beneficiaries worldwide. 

 

altshare is a leading, fast-growing equity management & compensation plans administration solutions provider. We love challenges. We are obsessed with our clients. We are on a mission to redefine the way founders do equity. All our products & services are supported through the altshare SaaS platform - the only equity management platform built for entrepreneurs.

 

  • disclaimer

 

"The above is a summary of a review of data as it was collected through the company's platform based on statistical data of operations carried out by third parties on said platform.

 

This is not meant to constitute a comprehensive review of the market and/or the market situation, whether as of the date of publication of this article or after it.

 It is emphasized that the aforementioned does not constitute a substitute for investment advice by a legally licensed investment adviser who takes into account the data and the special needs of each person.

For the avoidance of doubt, the above is not intended to guarantee any returns in connection with the companies reviewed in the aforementioned article and the above should not be considered a recommendation for carrying out operations and/or investment advice and/or investment marketing and/or advice of any kind.

This is not intended to be a substitute for tax advice. The information stated above is not intended to exhaust and/or replace the provisions of any law and in particular the position of the Israel Tax Authority and/or the Income Tax Ordinance in its full form.

The company may hold and/or sell, as part of its current activities, securities of the reviewed companies as mentioned in this article and it may have extensive and diverse business relationships with the reviewed companies either at the time of publication of this document and/or at other times, all as detailed above."

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