Equitybee is partnering with UI Charitable, a Donor-Advised Fund sponsor built for the way startup employees and founders actually hold wealth. The two companies solve different ends of the same problem. Equitybee helps you unlock the value of startup equity. UI Charitable helps you give from illiquid and private assets. This post is about the second one, and why it matters most in the year your equity pays off.
Startups are exciting. They’re fun, disruptive and they may create value. That can propel economic growth, help our communities and improve our quality of life. Startups (and other new small businesses) are the backbone of our economy, as 89% of firms in the US employ less than 20 people [1]. But startups are also hard. Getting involved in them as entrepreneurs or employees can carry a high degree of risk. Those who choose to participate in the journey and invest their valuable time in these early-stage companies may be rewarded properly if value is created.
One currency that startups may use to reward employees (like you!) is in the form of stock and stock options. For various reasons, which we will review in later posts, we believe, the mechanism of using this currency is broken. Some employees are not able to capitalize on this additional value as anticipated. Making things even worse, we believe that this value-loss problem may make it difficult for startups to attract the best talent, therefore reducing their chances of success and hurting the value of their stock even more, adding further to the loss of value.
This is a problem. One that we’ve experienced first-hand and have witnessed for years as we’ve built early-stage companies or worked for them.
EquityBee’s mission is to fix this problem. We’re here to give early-stage private company employees the opportunity to unlock and realize the value they worked so hard to create. By leveraging technology and capitalizing on the fact that people are comfortable transacting financially online, EquityBee aims to remove friction from the compensation world, help startup companies reward employees better, and provide them with the financial tools to compete with big corps to help increase their chances to succeed. We think it’s only fair and it’s the right thing to do.
We are starting with the people who are building these companies – startup employees. If your options are vested and you are overwhelmed with the potential high cost of exercising them, if your options are about to expire and you don’t want to lose them, or if you just want to learn more about stock options and the complexities around them, EquityBee is here to help.
[1] https://sbecouncil.org/about-us/facts-and-data/
What a Donor-Advised Fund actually is
A Donor-Advised Fund is a charitable account held by a sponsoring 501(c)(3), in this case UI Charitable. Once you contribute assets, you no longer legally own them, which is what makes the deduction work. What you keep is advisory privilege. You advise how the funds are invested, when assets are sold, and which charities receive grants over time. The deduction happens in the year you contribute. The giving to actual charities happens on the timeline you advise, with no required distributions in any given year.
Stage two: this is where UI Charitable is different, and where it fits startup employees
Here is the part that matters for the way you specifically hold wealth.
UI Charitable allows you to donate long-term appreciated assets such as public stock, private stock, cryptocurrency, etc. to a Donor-Advised Fund, and receive a tax deduction equal to the fair market value of those assets. Startup employees are exactly the people whose appreciated wealth sits in private and illiquid form. UI Charitable can serve the asset class most of the giving world cannot.
One important boundary
To be clear about what does and does not apply. You cannot donate shares that are covered securities by the Equitybee agreement and received by using Equitybee stock option funding. You can, however, donate other appreciated assets to UI Charitable.
*This is not tax advice. Consult a qualified tax professional regarding your specific financial situation.
Case Study: A startup employee in California
How does it actually work? A side-by-side comparison of a startup employee in California.
This same example would work for any appreciated asset donated in-kind.
Startup employee in California
Salary: $350K • Private share value: $1M • Shares donated to a Donor-Advised Fund: $300K (30%)
Getting started
get started with UI Charitable by visiting https://www.uicharitable.org/equitybee
