Equity Management Solutions: the other side of the cap table

1. The trend

The past few years have seen the rise of private equity management software, mainly driven by the success of Carta (valued at $1.7B with an annual revenue run rate at $55M). The approach of most of these startups (Ledgy, Capshare, Capdesk, Equity Track just to name a few) is a top-down one as they target CEOs, CFOs and investors to help them manage their cap table, valuation, investments, and equity plans.

But the other shareholders, mainly the employees, are not really at the core of the product experience, and often set aside. This is why it’s very interesting to see a new crop of companies focusing on employees instead of the CEOs and investors.

The main problems that these products want to solve are of several orders:

  • Education: educate employees about equity and options so that they can make the best decisions for them both in the short and long terms (different types of existing equity/options, explanation of legal terms, how it evolves, etc…)
  • Finance: help employees exercise their options (not everyone has the cash to exercise early) by connecting them to loan providers, or by financing directly these options for the employees.
  • Finance: help employees sell their shares on secondary markets (it’s an opaque process, and the idea is to bring transparency to it).
  • Admin: information and filing of tax requirements.

Here are three startups illustrating this trend:

Vested – Seed raised $1.5M – Boston.
“Finally, a way to understand your startup equity. Discover how much your options are worth and how they stack up.”

Secfi – Series A $7M – San Francisco.
“Financing for option exercise and holders of private company stock”

Sharewise – Pre-Seed – London.
“Turn the success of your employer into a financial benefit for you. Sharewise helps you make the most from Sharesave with free advice, our share plan waitlist notifies you when the next plan starts.”

2. The Startup Memo: Vested

Consumer Fintech – Seed – Boston

Vested is a consumer Fintech startup that helps employees of privately held companies better understand and make use of their options by bringing more transparency around data (valuation of a company, recent stock sale information etc.), more information around taxes and legal liabilities, as well as access to secondary market buyers and loan providers (to sell & exercise shares/options).

  • 👍: Awesome
  • 🤔: Question
  • 👎: Problem

Need

  •  👍As I explained in the trend section, the majority of the existing players in the equity management software space (Carta etc…) adopts a “top-down” approach by targeting mainly CEOs, CFOs and investors, leaving employees as “second class citizen”. I find it super interesting that Vested enters the market with a bottom-up approach by bringing more transparency to an opaque market for most employees who hold options/equity (similar to a Glassdoor, but for equity). There’s a lot of information asymmetry between the employees and the management

Market

  •  🤔Market-sizing top-down: according to Solium’s investors’ presentation (Solium was the biggest publicly traded equity management SaaS company before getting acquired by Morgan Stanley for $900M earlier in 2019) they estimate the TAM of the “Global Equity Management Software industry” at around $1B. According to the same source, Solium did $100M in revenue in 2018.
  •  🤔Market-Sizing bottom-up: According to this report from EFES, there’s a total of 15M employees holding shares and options in privately held companies in the US + EU, and 28M for publicly traded companies. If we, at first, take into account only the privately held segment and assume that the average annual revenue per user should be between 10$ and 100$, the initial TAM of Vested would range somewhere between $150M and $1.5B.
  •  👍As a note about my TAM calculation, I believe that if Vested manages to reach a critical mass of employees, it will open the door to more monetization streams (like taking a cut from loan providers) as well as more services that can be sold to employees and companies, and potentially a network effect (the more employees will be on the platform, the more companies and other employees will follow). As a consequence, the “end game” TAM is much bigger imo (but it’s always an interesting exercise to size an initial market).
  • 👍 Market trend: The global trend is toward more privately held and financed companies. For instance, “US PE backed companies numbered about 4,000 in 2006. By 2017, that figure rose to about 8,000, a 106 percent increase. Meanwhile, US publicly traded firms fell by 16 percent from 5,100 to 4,300 (and by 46 percent since 1996). Source.”

Product

  •  🤔One of the major questions is how can vested get access to sensitive data like valuation, total number of shares (etc.) at scale (ideally they need it for many companies) and keep it up to date. At the moment it seems like they achieve that through partnerships with the companies themselves, but I’m curious to know ́whether they can do it legally through other means (for example by crowdsourcing data from the employees directly)

Team

  •  👍Experienced team