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.
If you stay in-the-know about Wall Street trends or work for a startup thinking about going public, you’ve probably heard the word SPAC being thrown around a lot recently. The four little letters add up to one big trend turning the traditional IPO model on its head. Well-known companies like Taboola and Hims joined the 200 SPACs that went public in 2020, raising an astonishing $64 billion in funding. That’s about double the SPACs compared to the previous year, and more than 5x compared to 2015. But what actually IS a SPAC and how is it different than a traditional IPO? Good question. Here’s everything you need to know about SPAC IPOs and how they affect employees:
SPAC is an acronym that stands for Special Purpose Acquisitions Company. It’s Wall Street speak for a shell company set up with the sole purpose of raising money through an IPO to eventually acquire another company. SPACs have no commercial operations, no products, or sales. They’re set up by Wall Street insiders or industry experts like former CEOs, who investors trust to do a good job acquiring a private company. It sounds like a risk, but keep in mind that SPACs have a deadline to find a suitable deal, usually within about two years of the IPO. If not, the SPAC is liquidated and investors get their money back with interest.
You got it. Diamond Eagle Acquisition Corp. was set up in 2019 and went public as a SPAC the same year. It then announced a merger with digital gambling platforms DraftKings and SBTech. DraftKings never had a traditional IPO,but they began trading as a public company when the deal with Diamond Eagle Acquisition Corp. closed in April. The market cap of Diamond Eagle is $22.6 billion, compared with a $6 billion market cap right after the merge.
There’s no clear answer for why SPACs are so popular right now. But according to Digiday, some industry insiders think it has to do with the immense public scrutiny and drama that followed WeWork’s IPO plans, leading to a much lower valuation than they anticipated. If instead of going the traditional IPO route, they had been acquired by a SPAC in order to go public, they would not have had to disclose as much information publicly, and WeWork could have saved a lot of face (and been worth a lot more money).
If your company is going the SPAC route and you want to know more about exercising your options, shoot us a line! EquityBee is all about connecting startup employees to investors so they can take control of their financial future when their company goes public.
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
