Tech millionaires proliferate in Israel’s tech boom
The Covid-19 crisis has been good for tech workers around the world and this is also true for Israel – the “Startup Nation”.
Israel’s tech industry employs hundreds of thousands of people who, over the past year, have enjoyed a dramatic, often exponential, rise in their company’s stock price.
The demand for the products of these companies has increased during the pandemic, due to the need for technological solutions that make it easier to work and study at a distance – communication solutions, infrastructure, cybersecurity, etc. Shares of publicly traded tech companies have skyrocketed, also due to government incentives. As for private companies, many are on their way to Wall Street, via an IPO or a SPAC merger). Others benefit from an increased valuation of private placements.
How well have high tech and life science workers benefited from the skyrocketing value increase over the past year? “Globes” recently analyzed the issue of options held by employees of Israeli tech companies traded on Wall Street. The results show that the profit on the options exercised by the employees of these companies in 2020, and that on the options currently exercisable, amounts to approximately $ 5 billion. (Referring to all employees of these companies, not just Israeli employees).
A leading accounting firm (name withheld on request), analyzed the matter from a slightly different perspective, focusing on tech workers in Israel. The interesting conclusion is that tens of thousands of tech workers in Israel have become millionaires over the past year, on options (shekel or dollar), some of which are fully vested and others still subject to restrictions. contractual.
The same study found a “top line” of around 10,000 relatively high-ranking employees who, over the past year, have increased their value by a million dollars or more (some of which are still “on the table”). paper ‘, as mentioned). Another 10,000 to 20,000 lower-level employees increased their wealth by NIS 1 million or more.
Nevertheless, a large number of high-tech workers in Israel are not among the lucky ones, and the distribution of wealth is uneven. The division, in most companies, is owned by management – a small number of employees – who hold about 25% of the options; 40 to 50 lower-ranking employees holding another 25%; 200 others hold the next 25%, and the remainder the remaining 25%.
These findings could be of great interest to wealth management companies advising high net worth clients on investment and asset management. This increase in wealth for such a large group also has implications for their purchasing power: the amount they will spend on apartments, cars and more, and may even affect the entire Israeli real estate market, which has recently seen a surge in demand and prices are rising.
Leapfrogging 5-10 years
The same report shows that the growth of the local high-tech industry has accelerated over the past 18 months. Ordinarily, this rate of progress could have taken 5 to 10 years, but has accelerated due to the pandemic. It also had an effect on the value of options held by employees.
The study took into account several dozen leading Israeli tech companies out of a hundred high-tech and life science companies traded on Wall Street, as well as 30-35 companies en route to Wall Street and 40 other unicorns (private tech companies valued at over $ 1 billion).
Analysis indicated that the aggregate market value of several dozen major Israeli tech companies traded on Wall Street has more than tripled from the low point of the Covid-19 epidemic and now stands at over $ 200 billion. . A tens of billions of dollars increase in their total value is slated for the end of 2021 (given the number of huge floats planned, including the merger of eToro and Iron Source with wall-traded SPAC companies. Street, valued at around $ 10 billion each).
Based on these results, the accounting firm estimates that 8,000 to 12,000 Israeli high-tech employees are “blue-chip” high-tech employees worth $ 1 million or more (in practice or on paper). ). In addition, they estimate that there are a large number of employees – up to 20,000 – who have also benefited from a nice but smaller increase (1 million shekels and more) in the value of their options, in practice and on paper.
A quarter of all industry benefits go to Wix
A recent Globes analysis found that the Israeli public company with the highest value-added benefit was cloud-based internet service company Wix, with more than a quarter of the total benefits calculated for all company employees. local technology traded on Wall Street. Wix, which employs around 2,300 people in Israel, has had a very strong year from a business perspective and its share has more than tripled from the March 2020 low, with a current market cap of $ 17.9 billion. .
Wix provides solutions for small and medium-sized businesses that allow them to easily set up and manage websites. When lockdowns in Israel and around the world caused businesses to physically shut their doors, it sped up their going online – and Wix benefited. In total, the amount of options exercised at Wix last year reached around $ 700 million, with a similar potential amount in options exercisable by employees, at the end of this year.
In life science companies too, employees benefited from generous stock options in 2020: Novocure, developer of oncology therapies, which employs around 1,000 people, saw $ 135 million in options raised, earning employees $ 511 million at the end of the year. Novocure recently became the most valuable Israeli company on Wall Street and now trades with a market cap of $ 21 billion, against a market cap of less than $ 7 billion, at the end of March 2020.
Fiverr is another star of employee stock options. Fiverr, an online marketplace for freelancers, with a market cap of $ 7.5 billion, and 550 employees, with total benefits of $ 434 million in options. Next is renewable energy technology developer SolarEdge, with total profits of $ 360 million for more than 3,000 staff, half of whom are in Israel. SolarEdge’s market capitalization is $ 13.7 billion.
Cybersecurity company Check Point is another large high-tech employer with around 2,300 employees in Israel, with a market capitalization of $ 15.8 billion. Two other large Israeli cybersecurity firms traded on Wall Street, Varonis and CyberArk, have a similar market capitalization of around $ 5.7 billion each; both employ around 600 workers in Israel.
These large, high-tech Israeli companies trade on Wall Street, but one of them also trades in Tel Aviv: NICE Systems Ltd. (Nasdaq: PLEASANT; TASE: PLEASANT). Under the leadership of CEO Barak Eilam, over the past year, NICE has become the largest company in TASE with a higher market capitalization than Teva Pharmaceutical Industries Ltd. (NYSE: SUITS YOU; TASE: TEVA), Hapoalim Bank (TASE: POLI) and Bank Leumi (TASE: LUMI). NICE’s current market capitalization is $ 15.2 billion, up from $ 9 billion at the end of March 2020.
Gidi Shalom Bendor, CEO of IBI’s S Cube Financial Consulting, has been following the high tech industry for years and is well versed in the subject of employee stock options. “There is no doubt that the amounts that we are hearing about today in the high tech arena are very large, unlike anything that has happened before, and the population affected is larger than ever.”
“Nevertheless, we have to separate the founders of the company, who can make millions of dollars, and the employees, who can make a million shekels or dollars by selling options, a quarter of which goes to the company anyway. income tax. For them, it’s not necessarily a life-changing event, and not always even enough to buy an apartment in Tel Aviv. Even when you hear about crazy outings like ironSource, you have to ask yourself, for example, how much will go to employees, and how many employees who are not senior managers. “
Another important distinction, according to Shalom Bendor, is between employees who sell all of their holdings as part of an exit or IPO, and those who exercise part of their options as part of a secondary offer ( to bring new investors into a startup), or suddenly end up with money following a rise in the share price.
“Companies have an interest in retaining their employees. Therefore, they will limit the number of stocks they can sell in secondary markets, for example, to 20%. This can be a life-enhancing factor that reduces stress at home, apart from that, all those years of hard work and sacrifice have paid off, but nothing more.
“On the other hand, when you sell all your options, you can get an amount that allows you to change your priorities in life, make decisions with less pressure and get out, for example, to found the startup whose you’ve always dreamed of it, even if you didn’t earn a salary in the first year. “
In any case, Shalom Bendor warns that money does not always make the workers who receive it happier. “From what I’ve seen, the more you get, the higher your standards are. People start to look at what they’ve been given, to compare themselves to others and to what they have. that’s what life happens. “
Posted by Globes, Israel Business News – fr.globes.co.il – on May 2, 2021
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