At a time when many Israeli businesses are struggling to survive in the wake of the government’s restrictions aimed at curbing the spread of the coronavirus, the high-tech industry is flourishing. Israeli startups raised a record-breaking $10 billion in 2020.
Israel’s unemployment rate is surging, but those in the high-tech industry aren’t fearing for their jobs. Furthermore, a review by TheMarker found that 13,500 employees at the 10 largest, publicly traded high-tech companies in Israel saw their stocks and options increase by some $2.5 billion in value, in paper at least. This massive gain in wealth is due to a sharp spike in share prices of these high-tech companies amid expectations that they would profit from the coronavirus pandemic and the resulting push for digitization.
Most of the wealth was accrued by workers at three companies: Wix, Fiverr and SolarEdge. Some 3,300 Israeli workers at these companies saw their stocks and options increase in value by some $1.9 billion last year, based on data from 2019. The gain in wealth wasn’t uniform within the companies, of course; a disproportionate amount went to employees with more senior positions and those with more seniority, particularly because they acquired their options at lower strike prices.
These figures were calculated as of the end of 2020, but change on a daily basis along with share prices. They also don’t reflect the 25% capital gains tax that workers would be required to pay when they cash in. Nor do they take into account fears that the market is overheated and valuations may drop.
Options are an inseparable part of employee compensation at startups and large technology companies. They come due gradually, generally over four years, so long as the employee remains with the company. They are designed to tie workers to their employers and give them an interest in the company’s success.
In early-stage startups, options primarily reflect the future dream of an exit, and the first few workers could potentially become millionaires should the company become a unicorn – a privately-held company valued at $1 billion or more. For workers at publicly-traded companies, options have a more immediate value – the moment they come due, they can be cashed in at the strike price. As long as the company’s share price is higher than the strike price set in the option, the employee profits from the difference.
However, the following companies are the industry’s most successful ones and therefore do not necessarily represent the value of options enjoyed by the average high-tech employee. Most startups ultimately fail, and employee options never become worth anything. Even during an exit, the employees don’t necessarily profit. This could be because the sales price did not offer the investors a return on investment, or because the sales agreement did not take them into account.
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TheMarker’s calculations took into account options that had come due as well as those that were not. As of the end of 2019, some 85% of SolarEdge’s options had come due, along with 70% at Wix and 37% at Fiverr. While it’s likely that many employees did not change jobs in order not to lose options that had not yet come due, it’s also reasonable to presume that many also cashed in on their options as their companies’ share price soared.
Wix, which develops a platform for easily building websites, benefited from businesses’ sudden imperative to build digital platforms. The company’s share price increased by more than 100% last year, and is now valued at $14 billion. Wix’s executives and employees, who are compensated partially in stock options, began the year with 7.4 million options and 2.1 million blocked shares, which are now worth on paper some $1.22 billion more than they were at the start of 2020. Given that some 59% of the companies’ work force is in Israel, we can presume that this group is now $720 million wealthier on paper.
Fiverr, which offers an online commerce website for freelance services, employed some 340 workers in Israel as of the end of 2019. The company, now valued at $7 billion, saw its share price increase by a whopping 730% over the course of 2020. Its Israeli employees gained presumably $640 million, or $1.9 million on average per person.
SolarEdge, which builds a system for maximizing energy production from solar panels, has a market cap of $16.2 billion and some 2,400 employees, half of them in Israel. Its share price gained 236%, and the options and blocked shares that employees held as of the end of 2019 gained some $1.1 billion in value – of which $520 million presumably went to employees in Israel.
Two other notable Israeli high-tech companies last year were JFrog, whose product enables ongoing software updates, and Lemonade, a digital insurance company. Both had IPOs in 2020, and thus TheMarker calculated the increase in employee options and shares based on the companies’ valuation as of their last fundraising rounds in mid-2019. Over the past year, JFrog’s 300 employees became $320 million wealthier, while Lemonade’s 120 workers gained some $122 million.
The year was much less lucrative for employees of Israel’s other five largest high-tech companies: Check Point, Nice, Amdocs, Verint and CyberArk. Check Point’s share price was unchanged for 2020, for instance. The 2,260 workers at Check Point gained some $117 million, employees at CyberArk and Nice gained something in the tens of millions of dollars, and workers at Verint ended the year less than $10 million wealthier on paper.
TheMarker’s calculations were based on the companies’ own public reports on options and shares distributed to workers and executives.