This is a part of our quarterly and yearly report series, to read the 2022 high-tech industry full report click here.
Overview
The first quarter of 2023 was full of excitement and tremendous events. In three months we witnessed major layoffs in lead tech companies, the kick-off of the AI era, and the collapse of one of the largest banks in the world. The stock exchange market showed some recovery, yet many claimed that the beginning of 2023 was complicated for new start-ups and investors. We’ve let the data speak for itself and created this report to show you how the startup nations reacted to everything that happened.
We gathered data from over 3,000 companies under altshare’s platforms as well as around 20k transactions and services given this past three months, for an accurate view of the start-up nation. Because we fanatically keep our customers' privacy, the data presented will show trends and overall information with a drill-down to a certain level without compromising any client’s privacy.
The majority of the data was collected from companies based in Israel, yet we claim the information is a representative sample of the high-tech industry worldwide. Israel, for many years, has been among the top countries defined as a start-up nation, and its high-tech industry can be paralleled to most leading countries.
Executive Summary
We analyzed our entire database and brought some interesting information that only we can bring. Then we divided it into three main subjects: Employees' trust in their companies, the claim that remote working is a passing trend, and fundraising in the high-tech industry.
It seems that there is a 2% rise in former employees exercising their stock options. This means more employees believe in the company's success and some are willing to spend more funds in order to invest.
Secondly, about 40% of all high-tech companies in Israel are employing Americans. This fact indicates that the trend of “going back to the office” and stopping working remotely is not true. More than that, it is a surprising fact that although employing from countries like Belarus and Ukraine might be more cost-effective, so many companies employ Americans in particular.
Finally, it has been shown that there was a significant drop in investments in Israel, we second that claim and analyzed further to bring more data on the subject. Investments were made in Israel only in four main fields: Climate Tech, IT & Data, Life & HealthTech, and Retail & Marketing. While IT & Data was recruiting about double than others, this field still shows a huge decline from $38.7M in the first quarter of 2021 to $15.5M in 2022, and $10.6M in 2023.
The Data
Grants & Exercises
This small 2% rise from 2022 to 2023 is a big deal when you look at it from a five years perspective. When people today say crisis, most will probably refer to the financial crisis of February 2023, yet our data shows that it had no significant effect on the employees' side. Unlike Covid 19 on the other hand, it indicates that 2020 was the worst for employees handling stock options. Yet we continue to see a constant rise ever since the Covid 19 outbreak until today.
The outbreak affected employees on two fronts: financially and Trustworthiness. On the financial side, they started thinking four times before investing in anything, and no one knew what the future would bring so most didn't spend a cent before rethinking it. When it comes to trustworthiness, some companies did not know how to handle this crisis and it showed internally more than externally. For this reason, employees stop believing in their company's successes as they once used to. These two fronts made employees stop buying companies' shares, they did not exercise their options and many have let them be canceled.
We found a drastic drop in total money used to exercise stock options in this quarter of 2023 compared to the same quarter of 2022. The amount spent this year of $78M is an over 70% drop from last year. That being said, it’s important to remember that employees, like most people, are reacting-based investors. It means that they invest according to events that already happened and to the current market state or future expectations.
Therefore, as the high exercise amount in 2022 can be attributed to the tremendous valuations of the high-tech companies in 2021 - this quarter’s exercise amount can be attributed to the high-tech status in 2022.
Now we can say that although the numbers are not yet as they were before the pandemic, they are rising, constantly. This has incredible meaning in the short and long run for companies granting stock options, the question is, are they still granting stock options?
Our data shows that fewer grants were made to employees by more than 50% in this quarter of 2023. Less than 7,000 grants compared to 14,000 in the previous year might indicate a significant decrease in stock-based compensation distributed to employees. But in order to see the full picture we first need to visualize how many options they received compared to the entire company’s shares.
The fact that there isn’t a significant change in the amount of stocks in grants out of overall shares declines the fact that there were fewer granted options by scale, and might say more than you think. So much could be considered a reasonable excuse to stop granting stock options:
After all that, the founders did not forget the most important thing - the employees received the same stock-based compensation plans as they did before. Now that we know that companies did not neglect their employees, it is time to raise the question of where these employees are coming from. Are companies recruiting locally or remotely?
When it comes to Israeli companies, an average of more than 40% of all companies are employing from the other side of the globe, the USA. This finding is surprising for two reasons:
Fundraising
We second the claim that this quarter was unfavorable for fundraising. Our data shows an over 55% decline in investments from 2022 and over 75% from 2021. Investors did not invest but when they did, the funds went to four main fields: Climate Tech, IT & Data, Life & HealthTech, Retail & Marketing.
Although IT & Data was recruiting about double than others, this field still shows a huge decline every year. Climate Tech, on the other hand, which had a tremendous drop between 2021 and 2022, shows a minor decrease this year. This field might be balancing back to its true scales after 2021’s incredibly high fundraising and valuations.
That being said, the major decrease in investments might be attributed to the collapse of Silicon Valley Bank and its impact on the market. Although the Biden administration and the US government did manage to do powerful damage control, it might have left investors cowering over their fortune.
Demographics
Only a third of all grants since the beginning of 2023 were made to women, that data isn’t surprising but when we found out head did catch us off-guard.
By numbers, women received less than a fifth of the number of stock options that men did. The fact that there is still such a big difference between women and men in the high-tech industry, means we still have a lot of work ahead of us. Hopefully, when next quarter we will report a rising trend it will be the one balancing between man and woman’s gratings numbers and frequency.
An interesting fact to finish with is that our data shows that although men and women are being granted differently, they both exercise their stock options around the same age of 40. Maybe we are not so different or not different at all?
Final Notes
The first quarter of 2023 ended and it seems we are off to a very challenging year and the high-tech industry was indeed affected. That being said, employees seemingly regaining trust in their companies, and at the same time, companies do continue to grant stock options.
In the past three months companies struggled to raise capital as investors did not actively thicken their portfolios. Founders tried to minimize unnecessary expenses and prepared for the worse while trying to capitalize for the better.
Although investors are tighter, the stock exchange market does not seem to decrease by much. We recommend looking for alternative routes of funding and letting investors cool off in the meanwhile. While looking for funds, continue to elevate your employees, offering stock options is a great way to keep them interested, just remember to use this report to improve your granting strategy so you’ll stand out.
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altshare’s CEO Ronen Solomon
The high-tech industry did suffer tremendously in this first quarter of 2023 yet we do see companies regaining the employees' trust which is encouraging. Although companies are decreasing their salaries offered, they continue to grant stock options and use this method to try and cover the difference.
We witness an increase in repricing processes asked by companies and I estimate that this trend will only keep on growing in 2023. Therefore, investors did not thicken their portfolios and are probably waiting to see how the repricing trend will play out. Because of that, companies struggled and are struggling to raise funds since we started 2023.
To maintain their employees committed, companies should keep stock-based compensation active and relevant while looking to minimize expenses and better use their current budget.
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 over 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.
"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."
About altshare
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 Platform - the only equity management platform built for entrepreneurs.
