'Exit' may be the most Israeli word in tech. It describes the moment a company's shareholders cash in their investment, usually when the company is sold to another or goes public. Reading about Wiz selling to Google for $32 billion, or Classiq selling to Intel, the natural question arises: who actually gets the money?
The biggest share goes to those holding the most shares: the founders and the venture funds that invested. Employees usually get options, the right to buy company shares at a preset 'exercise price'. If the company sells well above the exercise price, the difference is the employee's gain. For example, an employee with options at an exercise price of $1 a share, in a company sold at $10 a share, gains $9 per option before tax.
But there are several buts. The first is vesting. Options do not belong to the employee from day one; they accrue over time, usually four years. Someone who leaves after a year gets only part. The second is dilution: every new funding round adds shares, so everyone's percentage shrinks. The third is preference: investors usually have rights ensuring they get their money back before employees. In a modest exit, employees may get very little, or nothing.
Beyond options, big deals usually include retention bonuses: money the buyer pays employees on condition they stay for a period after the deal. Intel, for example, reportedly set aside more than $100 million for retention in the Classiq deal. The reason is simple: what the buyer wants is mostly the people and their knowledge, and it wants to be sure they will not leave immediately.
And tax? Israel has a special tax track for employee options that, under certain conditions, allows capital gains tax instead of full income tax, but it comes with rules and holding periods. Anyone receiving options should understand their terms, and before an exit it is well worth consulting a tax adviser. Bottom line: options are a bet on the company's success. At companies like Wiz they changed hundreds of employees' lives, but at most companies they are worth less than hoped.
